Figuring our cost-per-point... did I do this right?

[nzdisneymom]

Not sure if this is the right place to post this, but since it feels "miscellaneous" I figure I'll post it here to start with

We became DVC members in March with 200 points at SSR. DH and I were talking about how to figure out what the "value" is when we travel with our DVC points and when to use points vs. when we might want to use cash to stay at a moderate like POFQ.

Anyway, I thought I'd start with figuring out how much we're spending "per point" over the lifetime of our contract... including the principle, interest and annual dues (is there something else I should consider?). If we don't pay off our contract early, and assuming the annual dues will remain about the same as they currently are, over the course of 48 years, we'll end up paying about $6/point (that's 200 points * 48 years = 9,600 points divided into $57,500 (yikes - I'm not sure I really wanted to know that!!!) or $1,200 / year (on average over time).

So when we went to SSR earlier this month and spent 52 points for a studio for our two nights, that would come out to $312 (or $156 / night). I looked at Travelocity to see what a weekend per-night cash option would be and it showed up as about $334 / night (or $668 for the stay - just over half of what our annual cost is).

Is that a good way to get a "comparable" figure for what we're spending / saving / pre-paying for our vacations?

We have a stay at OKW coming up in July - we're spending 65 points ($390) for what Travelocity says would cost us $902. And our days in December are 43 points ($258) for what Travelocity says would be $1,305......

I see on the Rent board that people rent points for $10 - $12 / point - I'm guessing that's based on their cost-per-point over the course of their contract plus convenience fees... I definitely think that's reasonable and then some... because if you look at it the way I've been figuring it out, I can see where renters are getting an awesome "better than cash" deal from DVC members who are willing to rent.

Thanks for reading my rambling...

 

[CarolMN]

Some people value their points at what it cost them - the method you described made sense to me. I'm sure you could get all fancy and factor in inflation, opportunity cost, sunk cost, etc., but to compare the cost of DVC stays to other options, your method makes as much sense to me as any other. JMHO.

Other people value their points by the amount that they could get for renting the points. Those that advocate this method usually do not subtract anything for their time and effort. IMHO, renting is not as easy/trouble free as one might conclude after reading all the posts suggesting it, LOL. But there is nothing wrong with this method either if the purpose is to compare the value of DVC options to non-DVC options..

It's really up to you. FWIW, I don't spend a lot of time "comparing", but I've only used DVC points for something other than DVC once - for the DLH in California. The DLH stay turned out to be points well spent, but I probably won't do it again, LOL.

Best wishes -

 

[linzbear]

You didn't figure inflation correctly into the equation.
Room rates go up exponentially with inflation.
Annual dues go up exponentially with inflation.
Original price per point does NOT go up with inflation.

If I were to do it I'd go with
Total cost of DVC including interest / Z years (depends on what you bought)
Then add this year's annual dues total ONLY to the equation and compare that to the rack rate (I'd compare it to rental rate myself).

For me, that's
92 * 150 / 36 = $383.30 + $560 = $943
Rental rate for 150 points is $1500+

So I'd say it's a good deal =)

 

[JimC]

Here is the way I do it.

1. Cost of contract divided by the total available points.

Example 100 OKW points with Feb use year purchased for $7,900. No banked or borrowed points and all current year points available. Total available points = 36 years multiplied by 100 = 3,600. Cost per point = $7,900 divided by 3,600 = $2.1944

2. Add in you current year's dues. OKW dues in 2006 are $4.2410

3. Total cost per point in 2006 = $2.1944 + $4.2410 = $6.4354

 

[byoung]

I use rack rate of rooms. Keeptrack of all costs and each trip subtrack the rack rates of the rms. In one year got 19 nights in studio's with my 200 BWV points. A good deal for a timeshare to me. And I had points left.

 

[Plutofan]

From a pure economic stand point your cost of your points is probably higher than most people want to believe. Being a accountant I base the cost based upon the actual cash flow. For example if you buy a 200 point Boardwalk contract for $85 with 36 years left I would calculate the cost as follows:

Up front costs $2.36 ($85/36 years)
Annual dues 4.69
Mortgage interest or
return on original up front
investment at 5% ($85 x 200 x 5%)/200 4.25

Total cost 11.30

If you have a mortgage then you should figure in the yearly mortgage interest. If you are lucky enough to not have a mortgage then you should factor in the lost income on the up front initial investment. I use a 5% CD for my example. This is a simplified example since it does not factor in the present value and it does not reflect a reduction of the mortgage interest or investment return for paydown of $2.36 per year per point. But it gives you a better idea of your true costs from a cash flow stand point. Without a positive cash flow you could find yourself in more and more debt as years go on. This does not factoring in the personal enjoyment of DVC which is priceless. Also you really need to amortize the up front costs since Disney is a prepaid vaction plan. If you keep it until it expires you have nothing left. This is purely from an economic standpoint. Just some thoughts.

 

[Plutofan]

I apologize if I may have offended anyone with my poor choice of words on my original post. The example in my original post was based upon realistic numbers. The point that I was trying to make is that most people’s true cost in DVC is probably in excess of $10 per point. DVC is a great value if you use your points at WDW. Using your points outside of WDW may not be a good value. When I priced out a Grand Villa on Saturday for our upcoming trip I was getting a value of around $5.5 per point by using points. When we priced out our cruise in 2007 I was getting a value of around $7.5 per point. As you can see the value is below the actual cost in my example. Of course this will change as years go on when you factor in inflation. But just from a current year standpoint using points was not cost justified in this case. When buying into DVC you really need to analyze your vacation habits. It is a big commitment and the vacations are priceless. Using points is each person’s own choice. You really need to analyze everything to determine if DVC is right for you

 

[cobbler]

I figure mine out in a simple way.

To be honest I don't factor in inflation, lost income on investment and all that. Me personally I just don't because we were going to go down to Disney anyway. I do this to figure out where I break even so to speak I guess.

So for my 220 SSR points, I spent 83.30 per point / 49 years worth of points = 1.70 per point over the 49 years. Then I add this years dues ONLY which are 3.98 so my cost for points this year is 5.68. And I update this every year. Last year my point cost was 5.53 per point.

So last year for example we stayed 5 nights in a 1bdrm at SSR costing me 108 points. 108 x 5.53 = 597.24 or $119.45 a night.

Last year rack rate on that room was 350/night. With tax the 5 nights would have cost me $1951.25 so I "saved" $1354.01 vs paying rack rate.
I also figure in the cost of the room with an AAA discount because it is unlikely that I would have paid full price so I run both comparisons to see when I would break even.
AAA rate for the same 5 nights would have been $297.50/night or $1658.55 total. Again "saved" $1061.31.

I don't figure in AP rates because I might not have necessarily bought an AP, plus AP rates have been doing funny things lately so I just figure rack and AAA.
And then obviously I do this every year to adjust for room rate increases and due increases.

Just simple math. I don't really feel like doing all deep into it with inflation, lost investment income and whatever else you might want to add.

 

[Doctor P]

From a pure economic stand point your cost of your points is probably higher than most people want to believe. Being a accountant I base the cost based upon the actual cash flow. For example if you buy a 200 point Boardwalk contract for $85 with 36 years left I would calculate the cost as follows:

Up front costs $2.36 ($85/36 years)
Annual dues 4.69
Mortgage interest or
return on original up front
investment at 5% ($85 x 200 x 5%)/200 4.25

Total cost 11.30

If you have a mortgage then you should figure in the yearly mortgage interest. If you are lucky enough to not have a mortgage then you should factor in the lost income on the up front initial investment. I use a 5% CD for my example. This is a simplified example since it does not factor in the present value and it does not reflect a reduction of the mortgage interest or investment return for paydown of $2.36 per year per point. But it gives you a better idea of your true costs from a cash flow stand point. Without a positive cash flow you could find yourself in more and more debt as years go on. This does not factoring in the personal enjoyment of DVC which is priceless. Also you really need to amortize the up front costs since Disney is a prepaid vaction plan. If you keep it until it expires you have nothing left. This is purely from an economic standpoint. Just some thoughts.

Your math is so flawed as to be laughable. You have grossly overrstated the costs of ownership. I am shocked that as an accountant you would have such poor skills in doing such analysis. I would gently suggest that you study your investment analysis texts again to learn about real vs. nominal, and to learn about doing marginal analysis rather than gross analysis. Comparisons between alternatives are only relevant at the level of differences among your alternatives. For example, your analysis assumes that the owner will take no vacations in the absence of DVC and that there is no inflation (and if there is no inflation, a 5% CD is ridiculously high). You do part of the analysis in nominal terms and the rest in real terms. Can't mix the two. In addition, if you want to take the investment aspect into account, you either need to use a declining balance method or only consider opportunity cost for a time period that is considerably shorter than the length of the contract. Sorry to be harsh, but if you are going to hold yourself out as an expert, then we should expect that quality of analysis.

 

[Plutofan]

I wish that you would read the post where I state that this does not factor in the declining balance of a note payoff which would be equal to the reduction in the original point cost. This reduction would lower your yearly mortgage interest and return on investment in future years. The actual cost would go down in future years as the orginal investment is reduced. Anyone who buys DVC should consider the value of the original payment and lost income on that investment. The boards are a place to express thoughts not that everyone agrees and not a place to make rude remarks to anyone. Lets all agree to disagree and keep these boards friendly.

 

[Doctor P]

I wish that you would read the post where I state that this does not factor in the declining balance of a note payoff which would be equal to the reduction in the original point cost. This reduction would lower your yearly mortgage interest and return on investment in future years. The actual cost would go down in future years as the orginal investment is reduced. Anyone who buys DVC should consider the value of the original payment and lost income on that investment. The boards are a place to express thoughts not that everyone agrees and not a place to make rude remarks to anyone. Lets all agree to disagree and keep these boards friendly.

That doesn't solve the problem in your math. It has little or nothing to do with a declining balance on the note itself (though that does improve things marginally). Unfortunately, people (over) rely on the information that they read on this board. So, if you desire to post a more sophisticated answer, make sure that it has some semblance of reality and accuracy to it. For most people, the true COST is well below $10.00 per point even with the cost increases.

 

[Plutofan]

Please understand that my analysis was from a purely economic standpoint as if you took no vacations which I know is not the purpose of DVC. Maybe I should have made this clear in my original post. By all means there are many intangible benefits and tangible benefits that everyone needs to factor in to their calculations which are not factored into my post. Please post your analysis with out factoring in any value for personal trips. I am always open to new ideas and please lets keep this friendly with no cheap shots.

 

[Dean]

There are a number of ways to look at cost and a couple of related factors. In general, usage and enjoyment would not factor in to cost, only value. If I am going to tie up my money in this type of issue, I'd want at least a 20% discount over what I'd have pain cash along the way, even adjusting for all inflation, return on investment, etc. I'd say the two main methods are those such as you'd use in any investment with a comounded return OR what one would have actually paid. Any other benefits or enjoyment may play to the value but not the costs. Using rack rates is only applicable if you'd have paid those without DVC. Whether it's DVC or the DDP, looking at the cost of what you did get really has no meaning unless you'd have paid that without the plan in question. IMO, 5% return after taxes is reasonable, depending on the investment vehicle, 8% is likely attainable, even after taxes. 5% prior to taxes is likely not with CD's, but 4% is.

Anyone can do what they want but I'D agree that many kid themselves into thinking it's a better deal than what it is. And many even kid themselves into using an outdated price they paid back when. The dollar value of owning DVC going forward is realated to what one could sell it for and not what one paid when prices were lower.

 

[nzdisneymom]

Thank you all for your replies to my original post. One of the things I wanted to do was show DH that even though the Fri and Sat points are double the weekdays, it's still better to spend DVC points than pay cash if we want to stay at comparable resorts to where we'd spend DVC. But if we can get a cash rate at our fave moderate resort (PO-FQ) for the same weekend that is less than our "points cost" then that would be a time to consider using cash instead of points and saving the points for later. But as it looks, for when we can travel, using points is a better deal for us (since we're spending the $ already to pay for the points as new owners - once our contract is paid in full and we're just down to annual dues, then that might be a different story for us). He wants to be extremely frugal with our points, so, as you can see from my sig line, I've planned out all the times we can go in the next year and gone ahead and booked what we could - and we STILL have points left over (since we had banked 80+ from our first Use Year - which we're October).

Anyway, I appreciate the thoughts about how to figure out the value of what we have... like others, we were going to be going to WDW anyway!

 

[mamatojon]

I'll tell you how we came to our financial decision. We were *very* simple, we knew we wanted to go to WDW every year for about a week each time. We knew we would want a room with a full kitchen/separate living area, and we knew we would never rent points to stay DVC, we just won't assume the risk involved. That left the FW cabins, because there is no way on earth we would pay rack rate to stay at DVC resorts. The cost for our cabin in 2005 was $249 a night. We looked at DVC (150 pts) and we saw that we could stay about a week (more if we split studio 2 nts/1BR five) for $190/month times twelve months a year which is a yearly cost of $2280. So we figured that for the duration of the loan period (likely before then because rack rates would increase more than our annual dues) we would be spending about $537 more on our yearly vacations. Not a savings over our usual travel habits, but we knew that if there was some way we could rent DVC from CRO for only $537 more per year that we would, we loved FW but not enough to stay there every single time. We also figured in that we would always rent a car at FW and not at a DVC resort so there would be a slight savings there, and there was value to us in the amenites that you just can't get at FW.

We paid off the loan early so I feel on that contract we are actually ahead. The add-on is something I struggle with because it was a purely emotional decison, once we stayed in a DVC resort we realized how much *more* it was than FW and added on so we could take longer/more frequent vacations. I feel great knowing I can take these superdeluxe vacations and not really spend significantly more than I would spend otherwise in lesser accomodations.

Basically, sometimes the nuts and bolts of the $$$ aren't always the driving force behind a vacation decision. If we were strictly talking $$$ the best thing to do is not vacation to WDW at all! The rooms/villas are only a small part of the total cost of a WDW vacation. Food/airfare/tickets/stuff is what the bulk of our budget is spent on.

Good luck with your decision.

 

[mamatojon]

*Doh!* For some reason I thought you were choosing whether to buy in or not, LOL. I think I need to read more thoroughly. Bleh.