DVC (w/Interest) vs. non-DVC for Cash... ®¿®

[EastCoast]

I set up a spreadsheet to compare the cost of buying into DVC as compared to the cash outlay for non-DVC rooms. I did this in an earlier post with different assumptions. When posted, some people objected that the cost of borrowing the original purchase price was not included. Others thought that the 6% increase in the cost for the non-DVC room was too high (DVC sales quotes 8%) to compare to the 2% increase in the DVC maintenance cost.

Taking these (and other) suggestions into consideration, here is a new worksheet, developed with the following assumptions:

Assumption #1: Purchase is being financed through DVC for 5 years @11.95% (DVC quoted rate... you can do better)
Assumption #2: Purchase of 210 points @ $80 per point ($16,800)
Assumption #3: Purchase date is January 1 so pro-rating of maintenance points would not be required
Assumption #4: DVC Maintenance fee will increase by 2% annually (as per DVC sales)
Assumption #5: Cost for the non-DVC room is based on the SWAN, 8/3/02, one night, 2 people
Assumption #6: Cost for a non-DVC room would increase by 2.5% annually (DVC sales quotes 8%)
Assumption #7: For 210 points you can purchase 8 nights stay per year (you can do better, you could do worse)

I calculated when the cost for the DVC room becomes less expensive than the non-DVC room.
Note that the graphic shows only the first 20 years of the 40 year contract term.

FOR NON-DVC OWNERS, DOES THIS SHEET MAKE YOU MORE OR LESS INTERESTED IN BUYING INTO DVC?

With hopes that you can read the small image below...
EC

 

[Maistre Gracey]

Thanks EastCoast.

11.95% for DVC finance, IMO, should be reduced by the average marginal tax rate, as most of us will take this as a deduction. Also for taxes, don't forget that dues include some property tax that can also be deducted.

I would think the fair comparison would be to equal hotel inflation with dues inflation, regardless of what that percentage might be (it would all be relative).

I don't know what The Swan prices are, but my PAP rate at The Poly has been around $200-$225/night, tax included.

That being said, your efforts are appreciated, and give me a better feel for the whole cost relationship thing. I think these small points could help "tweak" the figures.

Again, thanx for your efforts!

 

[EastCoast]

Such is the life of a "Excel Nut" that posts to forums such as these. Someone will always (make that "ALWAYS") make a suggestion or two to "improve" the worksheet. LOL

Yes, you are absolutely correct. Keeping in mind that we are not all in the same tax bracket, we are not all going to fund similarly, we are not all going to understand compounding, we are not all going to agree on future inflations rates, not everyone will realize that the difference between 2 and 8 percentage points increase in the non-DVC rate will affect the "cross-over point by no more than three years".... and so on, and so on and so on.

This is why when I am ready to post, I close my eyes and click my heels three times reciting,
"Keep your sense of humor, it isn't personal...
Keep your sense of humor, it isn't personal...
Keep your sense of humor, it isn't personal... "

: )

Thanks for your comments...
EC

 

[EastCoast]

While I can post a graphic of the spreadsheet, I can not post the actual file.
However, the offer of a copy in Excel 2000 format, sent to you via email,
still stands. PM me if you are interested.

EC

 

[vernon]

Thanks for your time and effort to do this. I think it makes a useful scenario and people can tweak it to their own situation. when I first bought into DVC I did a similar "worst case scenario" and came up with ( I think) a similar read to you, i.e. breakeven at about 12 years. Taking into account my own situations ( cheaper finance, Sun-thursday stays) I thought it likely my own breakeven would be substantially less than that ( as it indeed proved to be).
I do think you're original inflation rate for hotels was nearer the mark , granted it is a matter for conjecture, but historically it has been in the region of 8% and I do feel that the current( discounted) rates on offer reflect the lull due to Sept 11th that will make it more likely that room prices , if judged over the next 5-7 years will exceed, 2% considerably.

As I said, it is a useful guide for people to use in order to work out their own "values"

 

[Richyams]

The problem I see with most of these comparrisions is using a studio. I know many do use those units, but I think larger units would be more realistic.

Larger units have a MUCH faster breakeven. Way back in the begining, our breakeven was during our first trip. Because we had two years of points, staying 12 nights in the OKW GV cost about the same as buying enough points for six nights. Even at today's high point costs, larger units show a faster return.

 

[CarolMN]

I believe that larger units will show a faster break even point. However, I don't think most people would even consider renting those larger units for cash on a regualr basis. I know we wouldn't! It's only after buying into DVC that those larger units become "affordable"! For me, the numbers showed that we could stay in much nicer accomodations for what we were already spending to stay in moderate on site hotels. SOLD!

 

[pwoodham]

Unfortunately, a few of us don't have much of a choice about staying in the bigger units, and if we didn't own DVC, we'd just save a couple more years to stay in a 2 bdrm and not go as often. With 6 children, one not yet 2yo, we need the kitchen and the room. We've stayed in "adjoining rooms" at regular hotels, and I'd rather stay home. So for us, the cash vs. buy comparison for larger units is our reality.

 

[Maistre Gracey]

I can see how a 2 br or GV vs. multiple hotel rooms would break even earlier, but wouldn't a 1 br do the opposite? This is assuming just 2 or 4 in a 1 br, which many people do. Am I missing something?

 

[doubletrouble_vb]

I would tend to agree that 1 bedrooms would breakeven later than the studio if a regular hotel room were used as a comparison.

 

[peachfuzz]

I'd like to do the comparison using the cash price for the DVC resorts 1 and 2 bedroom units.

Is it possible to get a signifigant discount from the "rack rates" on the home away from home rooms, using AP's and the like?

That to me would be the best apples to apples comparison.

 

[EastCoast]

I am glad that this post finally raised a few replies. I suppose that's what happens when you post on a Sunday afternoon... it takes a few days for the "regulars" to see it.

Anyway, I've tried to look at ownership (borrow-ship) costs a few different ways. I keep coming back to the same conclusion which is...

... whether is takes one year, five, eight or twelve years, eventually costs will swing in favor of the DVC member. Thus, unless you plan to stop using your membership in the first few years, you will eventually realize a cost benefit by being a member.

EC

 

[Lisa P.]

...unless you plan to stop using your membership in the first few years, you will eventually realize a cost benefit by being a member.

This is only true if you always use your points for DVC resorts.

Many DVC members start out that way but within a few years (even the first year!), they are using points for non-DVC hotel, B&B and cruise options. None of these options are consistently a better value than a very similar alternative, paid with cash. This kind of points usage can easily extend the breakeven point farther into the future. It can even result in a member NEVER realizing a cost benefit.

 

[EastCoast]

Really? I had not considered that at all. Is the use of DVC points for a non-DVC resort a bad use of points? Personally, while we love to visit WDW, we prefer not to do so every year. Thus, I thought we would visit Florida every other year... something like that.

 

[BCVOwner2002]

EastCoast - Thanks for the information. I appreciate all of your efforts. I am also an Excelaholic and am glad to see there are others like me out there! LOL!!

 

[Maistre Gracey]

Originally posted by EastCoast
Really? I had not considered that at all. Is the use of DVC points for a non-DVC resort a bad use of points?

The way I (and many other DVC members) figure the value of points:

$65/pt (after MB) divided by 40 years = $1.63/pt
Add $3.92/pt for annual fee (my average for VWL & VB)

Total= $5.55/pt

That would mean a 35 pt night in The Poly would cost the equivalent of $194.25....TAX INCLUDED

This is pretty darn good rate if you ask me.

Are non DVC resorts the BEST use of points....no.
Is it a bad deal to use points other than DVC resorts...you will have to do math as I have done for The Poly. For my situation, the answer is no.

 

[Lisa P.]

Is the use of DVC points for a non-DVC resort a bad use of points? ... I thought we would visit Florida every other year... something like that.

Remembering that you still have the DVC Hilton Head option (which is lovely!) outside of FL, it's true that many of the non-DVC options are points-costly. They must be. DVC needs to be able to recover their costs in booking your reservation by renting out some DVC accommodations to pay for them. Since DVC cannot be certain of being able to do this (100% occupancy), they cannot calculate the DVC rental rate at rack rates, but at a discounted rate (AP, DC, etc.). Also, their contracts with all those Concierge Collection destinations are subject to change and can increase dramatically. This happened with the non-DVC Disney hotels within the last year, upsetting many DVC members.

The cash value of non-DVC usage of points varies widely. Some people calculate the cash value of their points as the person above. Some say you should consider it $8-$11 per point, since that's what you could easily rent them for, to others.

It would take a looooong posting to look at most of these options. Consider the many people who have found it more cost-effective to pay cash than points for their Disney cruise. Or for their non-DVC hotel stays. Generally speaking, discounts are not offered by DVC for points usage, wheras they may be quite readily available when paying cash, especially in today's travel environment.

If you only plan to stay at DVC resorts every other year, consider buying only half the number of points you would need for one of those vacations. Bank/borrow in your off years to double up in your DVC vacation years. Many people do this. Use the money you save for your other non-DVC vacations.

 

[mb168]

I knew there was something odd when I saw your spreadsheet and after playing with it last night I realized what it was. The annual cost to date even in the first year is the sum of all of your points plus interst and maint. If you are financing for five years, your first year/s are your 10% down payment, plus each year's payment with interest, plus maint. I havent run the ammortization yet to see where that takes it but your first couple of years couldnt be more than the purchase price making your average drop sooner. I also plan to come up with an average per night in the same resort, ie OKW, verses the Swan. Thats like comparing apples to oranges. I'm going to see how many nights it takes in different seasons to use 210 pts and then go online and run the room cost for the same night. Another thing I'll do more taylored to me is because I take "mini vacations" making long weekends when I can so my points use average will be higher but I think the room rates will be too... ? Thanks for the spreadsheet though. I know how to manipulate Excel but don't have the patience to sit down and learn to build it from scratch.

 

[JeffreyH]

When I was considering buying (and trying to convince the wife!) I made up several similar spreadsheets. One I thought was helpful was to look at total after-tax cash spending for say 210 points versus whatever number of nights in a regular hotel room (I think you can easily average more than 10 nights in a studio...but lets go with it). With DVC, in year one you had your downpayment plus your loan payments plus your main. fees less your tax savings if you deduct the interest costs and/or property tax portion of your main. fees. With non-DVC, you have the cost of the hotel rooms plus 11% in taxes (did your $213 number include taxes?). In the early years if you buy into DVC, when you are making the loan payments, you spend more per year. And you give up the use of that $...either for investing or paying down your other debts. But in later years, you spend a lot less. Putting it all together, you definitely end up spending less with DVC over the long-run (e.g. 20 years) than paying for regular hotel rooms. As you should...you just agreed to spend like $2,000 per year on average for Disney lodging (granted, you can rent your points, etc.).

Another way I looked at it was as an investment (which it is NOT...but I'm a numbers guy). You spend $16,800 today for 210 points. You could rent them, and subtract from that income your main. fees (increasing 3%/year). Assuming you can rent your points for $9 today and can get 3% more for them each year, on average over the next 20 years you'll "make" about $1,500 per year. About 9% per year. Not too bad...although you'll have the risk that you can't rent your points for that much (theme park traffic is down, etc.) and have to go through the hassle. And, in 2022, I firmly believe you'll be able to get $80 per point as a resale price.

And that brings me to my last point...you conclude that on average over the next 20 years you'll spend about $260/night if you buy 210 DVC points and spend 8 nights (again...I think 10+ nights is more likely for most of the year, meaning about $200/night). A total of $41,633, ignoring the potential tax savings on interest costs and propery tax costs. This is similar to the cash cost of a room that is about $192 + tax ($213) now and whose rate will increase 2.5% per year. (In the 20 years you show, you would spend $43,520 on the cash reservations). But I would argue that you could sell your DVC membership for $16,000+ in 2022...resulting in a much lower average cost per night through DVC membership. (About $156/night assuming 8 nights....$125/night assuming 10 nights). Of course, if you hold onto it for 40 years there is no resale value...although your average cost would still go down below what you see for the first 20 years, since you'll only have main fees.

Lots of numbers, I know...

But here's the point: If you're willing to commit to spending $1,500+ per year on average, you can end up paying less than (maybe a lot less than) $200/night on average over the long-term for some great rooms. And in 10+ years, I'm sure $200/night or less will seem like even more of a deal. I've seen many posts by people who have had their membership for 7-10 years saying that they would have spent more on cash reservations than they have paid on their membership...and now all they have to do is pay the main. fees.

 

[EastCoast]

Hello mb168,

I read your message with interest. I hope you share your "findings" with us after manipulating the numbers.
Thanks for your post.

EC