DVC Value

[Dean]

A bit extreme don't you think? if 10g is going to risk your house you ABSOLUTELY , IN NO WAY SHAPE OR FORM should even consider buying DVC

I wouldn't think it extreme at all and people buy things all the time they shouldn't, including DVC. We see it routinely here on DIS including posts within the last week or two. Personally I'm of the opinion if you can't get it together enough to save up for such a purchase you probably shouldn't vacation anyway. It happens every day that people lose their home over such purchases, especially lately.

Correct, I am not including the time value of the up front money.

The year I bought DVC my investments lost 12%, banks were paying practically nothing on savings so placing my money in DVC worked out better than if I had done either of those.

I have run numbers looking at taking that money that went into DVC, investing/saving it and then using that to pay for vacations and DVC still worked out to be a better deal in the long run.

But if you look over a 5-10 year period, the numbers are much different. Trying to justify DVC over a single short period is no different than day trading.

There are definitely ways to get nicer accomodation at a cheaper price than at DVC and this is a good example.

I think though most people that buy DVC are buying because they have already made the decision that they want to stay on-site. Their next question is what is the most affordable way to stay on-site for the type of accomodations they want.

I'm not willing to concede that most people who buy DVC know and look at all the options and make an informed decision, the truth is that most don't. And many of those would likely consider the very nice off property options with the built in savings if they did truly know all the options. In addition many do buy DVC even if they have some idea of the other options related to the emotional component and the rational decision would still be the other way. How often to we see people post here that they wouldn't even consider a timeshare but bought DVC, there was a thread in the last week on that very subject.

Given that a lot of the resorts are attached to hotels, shouldn't the increase in costs be similar for both the resort and the hotel? I've actually never bothered to check, but using BWV as an example it would be interesting to see how much MF have went up annually compared to the annual increases for the hotel room.

Unfortunately past performance does not guarantee future results. My feeling and statements are that maint fees will increase at a higher rate than both cash DVC options and Disney hotels when you look at effective prices taking discounts into account. Whether the difference is enough to remove the value of owning DVC in later years (which is different than buying late in the course), remains to be seen. Rental rates certainly haven't increased as much as maint fees have.

 

[DougEMG]

But if you look over a 5-10 year period, the numbers are much different. Trying to justify DVC over a single short period is no different than day trading.

I've run numbers, have posted some number and they look good to me, but perhaps I'm missing something. Why don't you provide some numbers with real examples to show how things don't work out over the 5-10 year period. I'll provide similar numbers and we can compare and see if we are both talking the same thing or not.

For example, if I compare a 1 week stay at a DVC with investing the money instead and staying 1 week in a moderate and using the following numbers.

DVC: 100 points OKW, purchase price $4,500 ($45/point), MF $5.2 with annual increases of MF of 4.5%
Hotel: $987/week ($180/night + taxes - 30% discount) with investing $4,500, with annual hotel price increase of 3% and an investment return of 4%, and I'll ignore the tax implications on the 4% return.

After 10 years, the $4,500 that you have invested to pay for your hotel stays is eliminated. While the DVC OKW contract still has 19 years left on it. So in year 11, your hotel room is costing you $1,462 for the week, while your MF are only $808.

For myself I always figure out where that break even point is compared to what I would have done without DVC. If the breakeven point is within 6-8 years then I'm happy buying the contract (I only buy resale).

 

[DougEMG]

Unfortunately past performance does not guarantee future results. My feeling and statements are that maint fees will increase at a higher rate than both cash DVC options and Disney hotels when you look at effective prices taking discounts into account. Whether the difference is enough to remove the value of owning DVC in later years (which is different than buying late in the course), remains to be seen. Rental rates certainly haven't increased as much as maint fees have.

While past performance doesn't guarantee future performance in terms of investing, I feel fairly confident that comparing past increases in room rates with past increase in MF is a very valid tool for estimating how future increases will compare.

Many of the costs that go into both DVC and the hotels are the same such as house keeping, transportation, grounds maintenance, etc. An increase in house keeping is going to affect both DVC and the hotels.

 

[Dean]

I've run numbers, have posted some number and they look good to me, but perhaps I'm missing something. Why don't you provide some numbers with real examples to show how things don't work out over the 5-10 year period. I'll provide similar numbers and we can compare and see if we are both talking the same thing or not.

For example, if I compare a 1 week stay at a DVC with investing the money instead and staying 1 week in a moderate and using the following numbers.

DVC: 100 points OKW, purchase price $4,500 ($45/point), MF $5.2 with annual increases of MF of 4.5%
Hotel: $987/week ($180/night + taxes - 30% discount) with investing $4,500, with annual hotel price increase of 3% and an investment return of 4%, and I'll ignore the tax implications on the 4% return.

After 10 years, the $4,500 that you have invested to pay for your hotel stays is eliminated. While the DVC OKW contract still has 19 years left on it. So in year 11, your hotel room is costing you $1,462 for the week, while your MF are only $808.

For myself I always figure out where that break even point is compared to what I would have done without DVC. If the breakeven point is within 6-8 years then I'm happy buying the contract (I only buy resale).

I could do that but it's likely easier for you for me to post my criteria and you can plug it in to your way of calculating. I'd use more than 100 points because you're comparing to deluxe and SSR/OKW isn't a fair comparison, maybe 125 points for a week yearly (I'm assuming you compared to a full week) looking at BWV preferred, BCV and VWL as medium range options. I'd assume return of principle over 10 years, not the life of the contract. I'd assume 8% investment return after taxes but if you want to go lower, that's up to you though I think 4% after taxes is definitely far too low. In addition to adjusting by 30% below rack rate (which is reasonable) one at least needs to consider what you're giving up with DVC like daily maid service though this is variable from one to another. Even then it is my opinion that DVC will compare favorably to the deluxe options and pretty close to moderates but above values and significantly more than off site which many people actually prefer. I simply felt some of your comparisons and assumptions were flawed at least based on what you posted. IF I understood correctly you used a short period market loss as a justification, ignored the time value of money (at least initially) and the biggest error to me, assume that hotel rooms would increase at the same rate as maint fees. YMMV.

 

[ELMC]

I appreciate the conversation and all the good points that are being made. But I have to wonder if we are over analyzing things here. I understand the value in looking at a DVC purchase vs. other lodging options. Direct or resale? Stay deluxe with a discount code or purchase DVC? Rent points or buy? Finance or pay cash? These are all good questions to be asked. But as soon as we bring cost of use of money and time value of money into the equation we are going beyond what is real and entering the theoretical.

Looking at investing the difference is nice, but there is no way to predict how our investments will perform over time. If (as is very likely in this economy) you decide to invest the difference and lose money in the first year only, you are now in a position where you need significant returns in order for this to be the better option. This is just as likely as your investments taking off and making that the better way to go. The bottom line is that nobody knows, so it is all just speculation.

Furthermore, as someone who spent years in the financial services industry, I can say from experience that the "rent and invest the difference" argument is a weak one. Why? Because I have rarely seen anyone actually invest the difference. Remember, this is money earmarked for a luxury purchase. Odds are that people are going to use it for just that. If it's not DVC it's a home theater system or a nicer car.

Finally, I have yet to see anyone include the intangible value associated with DVC. As a Marriott owner I can stay for much less off property, but it's not as convenient. There's value to staying onsite. Being able to log on at 8:00 am at the exact 11 month window and get the exact room you want without any of the hassles or renting...value there. Discounts on annual passes and other items...value there too.

So while the analysis is good, it may be too much of a good thing. It's important to realize that a lot of this analysis is dealing with the theoretical and is, in the end, just as likely to turn out completely different than any of us predicted.

 

[Dean]

I appreciate the conversation and all the good points that are being made. But I have to wonder if we are over analyzing things here. I understand the value in looking at a DVC purchase vs. other lodging options. Direct or resale? Stay deluxe with a discount code or purchase DVC? Rent points or buy? Finance or pay cash? These are all good questions to be asked. But as soon as we bring cost of use of money and time value of money into the equation we are going beyond what is real and entering the theoretical.

Looking at investing the difference is nice, but there is no way to predict how our investments will perform over time. If (as is very likely in this economy) you decide to invest the difference and lose money in the first year only, you are now in a position where you need significant returns in order for this to be the better option. This is just as likely as your investments taking off and making that the better way to go. The bottom line is that nobody knows, so it is all just speculation.

Furthermore, as someone who spent years in the financial services industry, I can say from experience that the "rent and invest the difference" argument is a weak one. Why? Because I have rarely seen anyone actually invest the difference. Remember, this is money earmarked for a luxury purchase. Odds are that people are going to use it for just that. If it's not DVC it's a home theater system or a nicer car.

Finally, I have yet to see anyone include the intangible value associated with DVC. As a Marriott owner I can stay for much less off property, but it's not as convenient. There's value to staying onsite. Being able to log on at 8:00 am at the exact 11 month window and get the exact room you want without any of the hassles or renting...value there. Discounts on annual passes and other items...value there too.

So while the analysis is good, it may be too much of a good thing. It's important to realize that a lot of this analysis is dealing with the theoretical and is, in the end, just as likely to turn out completely different than any of us predicted.

There's value to some staying on site but not to others, some actually prefer staying off site. We were just at Grande Vista this weekend and had one of our best stays in Orlando in several years. I was going to come back and post 2 additional issues. One is that no matter the dollar analysis, I doubt DVC saves many people any money because the psychology is that many get larger units rather than taking the savings, added value but wasted savings. The other is that while the current points breakdown is favorable to weekends, this has not always been the case and likely won't cont to be the case. Therefore those looking at heavy use for weekends are likely to find the numbers quite different in the future. As for saving the difference, assuming one has the money to buy DVC without financing (as should be the case), there is no ongoing savings required since you'd spend any future money either on yearly dues or on yearly vacations. So all you have to do is invest the up front amount for a longer term, say min 5 years, much simply than yearly savings.

For perks there are few people where they add up to enough to even consider. Maybe if you list multiple family members with different households and get multiple AP that you'd get anyway, that's about the only way to get any sizable value from perks. And that is tenuous at best with little expectation it'll be a long term option, IMO.

Finally, I've observed over almost 18 years of ownership and 17 years of internet DVC discussions starting on the old Prodigy site, the natural course of these analysis is often for one so inclined to find a way to justify the purchase rather than to truly take an objective look.

 

[crisi]

Finally, I have yet to see anyone include the intangible value associated with DVC. As a Marriott owner I can stay for much less off property, but it's not as convenient. There's value to staying onsite. Being able to log on at 8:00 am at the exact 11 month window and get the exact room you want without any of the hassles or renting...value there. Discounts on annual passes and other items...value there too.

So while the analysis is good, it may be too much of a good thing. It's important to realize that a lot of this analysis is dealing with the theoretical and is, in the end, just as likely to turn out completely different than any of us predicted.

There is also negative "intangible value" - DVC encourages people to take trips they might skip without the timeshare. Even if you intend to go to Disney every year, there might be a year money is really tight and you skip it - with DVC you may make that trip work. We saw that over and over again in 2009 and 2010 around here.

As Dean said, there is value that equals negative savings - how many of us have treated friends and family to a room? How many of us would do that with cash reservations? How many people have discovered that a two bedroom is so much nicer than the studio they ran the comparisons on? Or started with the number of points they needed to replace their cash trips, and then bought a few more (we can sneak in a weekend over Food and Wine, or in Early December), and now end up going more than once a year.

Too much analysis and you don't act. But when you cherry pick the good part of the analysis, you end up in the situation we've seen here over and over again - a young couple who can afford DVC in the short term and buys it for the family they hope to start soon, but forgets that kids are going to cost money - probably a lot more money than they expect. Or someone with a mortgage with a balloon. Or someone who is already towards the financial edge driving an older car - the DVC payments are fine until the mechanic says "this one isn't worth fixing anymore" and they need a car loan and then the next week the furnace goes out. Its easy to get emotionally invested in the purchase, and then get emotionally invested in the ownership - and hang on to long.

And I've seen a lot of something else as well. People who did afford Disney vacations every year while their kids were growing up and never felt a financial pinch. Who are getting the family contribution for college and saying "how am I supposed to pay this?" Or hit retirement age without having managed to save quite enough to be as comfortable as they would like.

Now, I'm very financially conservative - and my own "rules" around DVC are pretty different and would result in a lot less people owning. But I've also seen people jump through hoops to justify what they want where you don't need near my level of conservatism to see that its a bad idea. Like, Dean, I've spent a lot of time watching these boards - and out there right now is someone who is cherry picking information...who is looking at the person who took out a loan (that they could afford) and saying 'it worked out ok for them.' We don't tend to get a lot of people who have to sell after a year or two of ownership, having taken a bath on the deal, hanging around telling us how it didn't work. Or someone who owned for twenty years saying "you know, I could have maybe skipped a few vacations so my kids didn't have such burdensome student loans."

The end result - you can either afford to sink around five figures into future vacations, and then commit to $1000 or so in dues, plus vacation costs, every year for years (probably plan to ten), or you can't. If you look at that total and aren't seeing value - don't buy even if you can afford it. But if you do see value and you can afford it, go for it. It isn't the cheapest option, but I'm not driving the cheapest car I could either.

(ETA: We talk a lot around here about how much this costs - and almost nothing about the other end of it - how much each of us has to spend. i.e. we almost never discuss income or net worth. I know that there are some pretty well off members posting on this board who can "afford" pretty much whatever they want. And I know how easy it is to fall into the trap of "well, if they can afford it, I can too." When you have a seven figure net worth, throwing $10k at a timeshare purchase is not something that is going to make or break you if you don't squeeze every dollar of value out of it. When your net worth is -$20k in a house that is under water, it might.)

 

[DougEMG]

There is also negative "intangible value" - DVC encourages people to take trips they might skip without the timeshare. Even if you intend to go to Disney every year, there might be a year money is really tight and you skip it - with DVC you may make that trip work. We saw that over and over again in 2009 and 2010 around here.

As Dean said, there is value that equals negative savings - how many of us have treated friends and family to a room? How many of us would do that with cash reservations? How many people have discovered that a two bedroom is so much nicer than the studio they ran the comparisons on? Or started with the number of points they needed to replace their cash trips, and then bought a few more (we can sneak in a weekend over Food and Wine, or in Early December), and now end up going more than once a year.

Too much analysis and you don't act. But when you cherry pick the good part of the analysis, you end up in the situation we've seen here over and over again - a young couple who can afford DVC in the short term and buys it for the family they hope to start soon, but forgets that kids are going to cost money - probably a lot more money than they expect. Or someone with a mortgage with a balloon. Or someone who is already towards the financial edge driving an older car - the DVC payments are fine until the mechanic says "this one isn't worth fixing anymore" and they need a car loan and then the next week the furnace goes out. Its easy to get emotionally invested in the purchase, and then get emotionally invested in the ownership - and hang on to long.

And I've seen a lot of something else as well. People who did afford Disney vacations every year while their kids were growing up and never felt a financial pinch. Who are getting the family contribution for college and saying "how am I supposed to pay this?" Or hit retirement age without having managed to save quite enough to be as comfortable as they would like.

Now, I'm very financially conservative - and my own "rules" around DVC are pretty different and would result in a lot less people owning. But I've also seen people jump through hoops to justify what they want where you don't need near my level of conservatism to see that its a bad idea. Like, Dean, I've spent a lot of time watching these boards - and out there right now is someone who is cherry picking information...who is looking at the person who took out a loan (that they could afford) and saying 'it worked out ok for them.' We don't tend to get a lot of people who have to sell after a year or two of ownership, having taken a bath on the deal, hanging around telling us how it didn't work. Or someone who owned for twenty years saying "you know, I could have maybe skipped a few vacations so my kids didn't have such burdensome student loans."

The end result - you can either afford to sink around five figures into future vacations, and then commit to $1000 or so in dues, plus vacation costs, every year for years (probably plan to ten), or you can't. If you look at that total and aren't seeing value - don't buy even if you can afford it. But if you do see value and you can afford it, go for it. It isn't the cheapest option, but I'm not driving the cheapest car I could either.

(ETA: We talk a lot around here about how much this costs - and almost nothing about the other end of it - how much each of us has to spend. i.e. we almost never discuss income or net worth. I know that there are some pretty well off members posting on this board who can "afford" pretty much whatever they want. And I know how easy it is to fall into the trap of "well, if they can afford it, I can too." When you have a seven figure net worth, throwing $10k at a timeshare purchase is not something that is going to make or break you if you don't squeeze every dollar of value out of it. When your net worth is -$20k in a house that is under water, it might.)

All very excellent points.

While I certainly can't afford whatever I want (I really really want a house in Golden Oaks ), I'm well enough off (no mortage, no loans, high savings, good income and good pension plan) that if my DVC drops to $0 tomorrow and I have to walk away, it will not effect my current lifestyle.

Having said all that, I still did numerous calculations to make sure that DVC worked out to be a better option than just travelling the way we normally did. Hence my obsession with numbers.

As has been said numerous times this is a luxury prepaid vacation purchase and your purchase will eventually be worth $0 (and it may be worth $0 soon than you think or plan for).

 

[Dean]

All very excellent points.

While I certainly can't afford whatever I want (I really really want a house in Golden Oaks ), I'm well enough off (no mortage, no loans, high savings, good income and good pension plan) that if my DVC drops to $0 tomorrow and I have to walk away, it will not effect my current lifestyle.

Having said all that, I still did numerous calculations to make sure that DVC worked out to be a better option than just travelling the way we normally did. Hence my obsession with numbers.

As has been said numerous times this is a luxury prepaid vacation purchase and your purchase will eventually be worth $0 (and it may be worth $0 soon than you think or plan for).

This discussion points out several things. That everyone's situation is different, that many make bad choices and that there are assumptions to be made that may not may not end up being accurate. There is risk in buying, even in the best circumstance. For Deluxe on property not heavy on weekends for those that can afford it and want to go at least around every other year, it's a pretty easy choice. Non DVC timeshares can be even cheaper and give other options but are not for everyone. I'm sure you'll enjoy DVC.

 

[DougEMG]

This discussion points out several things. That everyone's situation is different, that many make bad choices and that there are assumptions to be made that may not may not end up being accurate. There is risk in buying, even in the best circumstance. For Deluxe on property not heavy on weekends for those that can afford it and want to go at least around every other year, it's a pretty easy choice. Non DVC timeshares can be even cheaper and give other options but are not for everyone. I'm sure you'll enjoy DVC.

Totally agree with you.

 

[ELMC]

There is also negative "intangible value" - DVC encourages people to take trips they might skip without the timeshare. Even if you intend to go to Disney every year, there might be a year money is really tight and you skip it - with DVC you may make that trip work. We saw that over and over again in 2009 and 2010 around here.

As Dean said, there is value that equals negative savings - how many of us have treated friends and family to a room? How many of us would do that with cash reservations? How many people have discovered that a two bedroom is so much nicer than the studio they ran the comparisons on? Or started with the number of points they needed to replace their cash trips, and then bought a few more (we can sneak in a weekend over Food and Wine, or in Early December), and now end up going more than once a year.

Too much analysis and you don't act. But when you cherry pick the good part of the analysis, you end up in the situation we've seen here over and over again - a young couple who can afford DVC in the short term and buys it for the family they hope to start soon, but forgets that kids are going to cost money - probably a lot more money than they expect. Or someone with a mortgage with a balloon. Or someone who is already towards the financial edge driving an older car - the DVC payments are fine until the mechanic says "this one isn't worth fixing anymore" and they need a car loan and then the next week the furnace goes out. Its easy to get emotionally invested in the purchase, and then get emotionally invested in the ownership - and hang on to long.

And I've seen a lot of something else as well. People who did afford Disney vacations every year while their kids were growing up and never felt a financial pinch. Who are getting the family contribution for college and saying "how am I supposed to pay this?" Or hit retirement age without having managed to save quite enough to be as comfortable as they would like.

Now, I'm very financially conservative - and my own "rules" around DVC are pretty different and would result in a lot less people owning. But I've also seen people jump through hoops to justify what they want where you don't need near my level of conservatism to see that its a bad idea. Like, Dean, I've spent a lot of time watching these boards - and out there right now is someone who is cherry picking information...who is looking at the person who took out a loan (that they could afford) and saying 'it worked out ok for them.' We don't tend to get a lot of people who have to sell after a year or two of ownership, having taken a bath on the deal, hanging around telling us how it didn't work. Or someone who owned for twenty years saying "you know, I could have maybe skipped a few vacations so my kids didn't have such burdensome student loans."

The end result - you can either afford to sink around five figures into future vacations, and then commit to $1000 or so in dues, plus vacation costs, every year for years (probably plan to ten), or you can't. If you look at that total and aren't seeing value - don't buy even if you can afford it. But if you do see value and you can afford it, go for it. It isn't the cheapest option, but I'm not driving the cheapest car I could either.

(ETA: We talk a lot around here about how much this costs - and almost nothing about the other end of it - how much each of us has to spend. i.e. we almost never discuss income or net worth. I know that there are some pretty well off members posting on this board who can "afford" pretty much whatever they want. And I know how easy it is to fall into the trap of "well, if they can afford it, I can too." When you have a seven figure net worth, throwing $10k at a timeshare purchase is not something that is going to make or break you if you don't squeeze every dollar of value out of it. When your net worth is -$20k in a house that is under water, it might.)

Very well put and quite frankly, there's nothing in this post that I can disagree with. I suppose I was just reading the analysis posts from a different perspective and didn't consider that other potential buyers might be in a different situation from myself. Thanks for opening up my eyes.

 

[crisi]

All very excellent points.

While I certainly can't afford whatever I want (I really really want a house in Golden Oaks ), I'm well enough off (no mortage, no loans, high savings, good income and good pension plan) that if my DVC drops to $0 tomorrow and I have to walk away, it will not effect my current lifestyle.

Having said all that, I still did numerous calculations to make sure that DVC worked out to be a better option than just travelling the way we normally did. Hence my obsession with numbers.

As has been said numerous times this is a luxury prepaid vacation purchase and your purchase will eventually be worth $0 (and it may be worth $0 soon than you think or plan for).

I like the numbers too, I'm an accountant by training. And us numbers geeks will take these discussions into places where those that aren't good with that don't follow, they only look for the conclusion "I'll save money." And that isn't a valid conclusion if you have risk that isn't shown in the numbers or if your use turns out different than your model. But for people like you - or me - the answer to the numbers question "will I save money" is really an academic exercise - it won't change our lives much if we end up spending more each year or if we sell our contracts for pennies on the dollar. For a lot of people, it is going to make a big difference in the quality of their non-Disney life if they get that answer wrong.

 

[DougEMG]

I like the numbers too, I'm an accountant by training. And us numbers geeks will take these discussions into places where those that aren't good with that don't follow, they only look for the conclusion "I'll save money." And that isn't a valid conclusion if you have risk that isn't shown in the numbers or if your use turns out different than your model. But for people like you - or me - the answer to the numbers question "will I save money" is really an academic exercise - it won't change our lives much if we end up spending more each year or if we sell our contracts for pennies on the dollar. For a lot of people, it is going to make a big difference in the quality of their non-Disney life if they get that answer wrong.

I'd say that at least half the SSR contracts I've make offers on are all with people who still have a loan balance on their contracts and can't afford to sell without getting their loan amount. Not a nice spot to be in and buying DVC did not work out the way they planned.