Financial Analysis on DVC and "DVCII"

[Joeblack]

In response to another thread started before, here's a rough and conservative analysis on break-even of points. Let's assume we bought 150 points at 70/pt (I am sure 90% of owners bought cheaper than this), an interest rate of 8% (although no matter how hard I try I can hardly get 5% theses days), a point rental of a preferred studio at BWV in choice season (it would take less points at OKW and owners do maximize points by not reserving on weekends and going in lower seasons), and a rack rate at a deluxe hotel of $300/night including taxes. We will also assume that inflation and resort price increases cancel out increases in dues and interest over earned interest.

-Initial Investment: (150x70) $10500
-Income Lost for not investing the money at 8% $10500x0.08= $840
-Annual Dues $4x150 $600
-Total Year/Cost for 150 points at BWV $840+$600 = $1440
-Total Annual Cost per point: $1440/150 = $9.6
-Total Cost of staying 11 nights in a studio paying cash: $300x11= $3300
-Total Cost in Points for the same stay at a BWV Preferred Studio: 154
-Total Cost in $ for BWV owner using poitns for the same stay: $9.6 x 154 = $1478

-Net amount of money an owner saves per year by using his/her points= $3000 - $1478 = $1521

-Number of years to recoup the initial investment in DVC: $10500/1521 = 6.9 years

Like I mentioned before, many other variables could change this outcome, but roughly, the result is that an investment in DVC will pay itself in 7 years. Now, if EPV opens in 2004, there will still be 38 use years for owners. More than enough to recoup their investment.

Why would BCV or WLV owners who will get roughly 40 years of use belong to an "outdated" DVC I and EPV owners belong to "DVC II"?

If points/day are higher at EPV than at the other resorts (I am quite confident that will not be the case), then I would see no reason to exchange into it. It will have no better location than the other resorts and it's unlikely that ammenities or luxury will be that significant over the other resorts.

 

[Dean]

Using the published rack rate is an unreasonable comparison. While the discounts may vary by amount and season, I think we can assume that, excluding holidays and the like, there will always be discounts. The price I've seen for studios recently has been as low at $169 at BW and currently at $189 for BW. That changes the scenario considerably lengthening the return in your scenario to around 15 years. And even that assumes you would have spent on vacation or the like the amount earned on the principal and the amount of the dues (which is a reasonable assumption). If you change it to just weekend stays or reinvest the earnings and dues amount or frequently use the DCL, DC or CC, you'll never break even. For me with free passes for a few years and staying Sunday to Friday, it might even be less than 6 years.

This means that everyone must evaluate DVC for themselves with their habits and expectations in mind, make plenty of educated assumptions and decide for themselves.

 

[Bennet]

I like your approch Joe.

OK Dean good point too. But I don't see it contradicting the base of Joe's analysis. What you are saying is that owning DVC is like locking a little better than the best, weak economy, discount rates for the the next 40 odd years.

 

[Richyams]

I like my analysis the best.

I bought for $51 per point in '92. 230 points comes to $11370. By our first stay the folowing september, we had paid 1 1/2 years worth of dues, the prorated first year and the second year, or about $1,200. For our first stay, we had two years of points. We stayed in a GV for 12 nights and had points left over. Our total cost was about $12,500 and the rack rate for our first stay was almost $12,000. When you count 12 nights times 6 passes, or 72 day passes, we more than broke even on our first stay.

We added 200 points during that stay at $55 or so per point. Similarly, they were back dated and the folowing year we had another 12 night stay and more than broke even again.

As far as my experience goes, break even is your first stay.

All the rest has been gravy and when I count eight years of free passes, I have to think it was about the best thing I ever bought.....save for a tech stock or two.

 

[Bill K]

Slow down my head is spinning!!!

 

[Joeblack]

You are right Rich. It was certainly a great investment, but, like all gambles, the risk when yiou bought was higher and there was not the second-hand experience of other owners. Higher risk=higher return/loss. In your case, I don't doubt you paid off the investment in your first stay. I bought in early 2000, and I still consider myself lucky since I paid 56/pt (resale) for my BWV ownership.

Dean: I think the assumption of a $300 room is not off. Rack rate for a studio at BWV goes from $279 - $415 plus 11%tax. (depending on season). The lowest available rate for a BWV studio (most likely standard view) is $189 plus taxes. This is restricted to certain dates, certain areas that get a discount card through the mail and AP holders. It also depends on availability. What percentage of people do you think will be able to get this rate? My guess is..not many. The vast majority of visitors to WDW who want to go will be lucky to get a $300/night rate.

Now let's also consider all the other variables than can lower the break-even time:

If you get a standard view at BWV or at OKW, you will get more nights for the same amount of points.

Many people will not be able to get an 8% annual interest rate on their savings. 5% is more realistic. Then again, like the $189/night rate you mention, this is happening this year. It might change in the long term. With a very generous 8%, the brea-even point is 7 years.

If owners go only weekdays (like I am sure most do), the number of days for your points inceases dramatically and again, lowers the break-even point.

I am not sure of the effect on seasons, but it looks to me like the difference in points between value and holiday season is higher than the difference in dollars. This means that if owners go during "lower" seasons (which from what I've read in this posts is the case), they will get even more days for their points and save more money than when they go during higher seasons.

All theses assumptions are not unreasonable. I am sure that they are part of the thinking process of any member who wants to maximize his/her points. And Most of us do.

 

[Dean]

Joe, I suspect we're pretty close and I guess I feel like we're sitting around a bar trying to top each others tall stories. We all like DVC and think it's a good deal in the right situation. I still feel that $300 for BW as an average rental price for a studio is unlikely. Also, since the standard views book up, a rental is more likely to be preferred. Of course with the resort sold out, rentals may or may not be available. I just wanted to point out there were other ways to look at it. For some, staying at one of the Marriott's is a better deal but not for us. DVC doesn't save us money, it only allows us to stay at nicer places.

 

[Joeblack]

Cheers Dean!!!

Next one's on me

 

[Bennet]

I'll have a draft!

Here's to ya!