Formula for deciding towards DVC?

[lenshanem]

I'm not a math whiz and neither is my hubby. In fact I handle all the bills. He also doesn't take very long to think things over. He either goes for it or passes. Soooo, when I briefly mentioned DVC to him again recently I was surprised by his response. (It wouldn't hurt to look into it...) Now, I've become a very frugal person since I decided to stay at home with the kids when my first was born five years ago. So looking at DVC I really want to feel like it isn't a foolish decision. (I understand it would take years for us to benefit in the investment, but we are pretty loyal to Disney and have gone almost once or twice every year since we met, minus a couple newborn baby years.) I want to present my hubby with something very quick and easy, he won't be interested in looking at a lot of numbers, especially if it is during the news or a baseball game .
I've come up with something very simple, not taking into account the deposit, interest rates on the loan and inflation prices. (This would be going over my head anyway! LOL)

I'm thinking...
11,100 for 150 points using the 1,500 credit through DVC.
Best case scenario if we didn't have DVC would be renting points (150 points at $10 = $1,500).
It would take 7.4 years of renting points to equal the price of a DVC ownership.
Those 7.4 years we would have put 4,406.70 in due fees (595.50 a year) which would equal to 2.9378 years of us renting points again.
This comes to 10.3378 years to equal out what we would have spent renting instead.
From the time of purchase we would have 39 years left until DVC expired, but after taking into account the 10.3378 years to break even we would have a little over 28 years left to enjoy our investment.
Then at the 1,500 if we had rented points instead of buying minus the dues of 595.50 we would save 904.50 a year or over 25,326 in the long haul.

I understand this is way off cause of fluctuations in prices and such, but it gives me a general idea? I'm also assuming the best price we could get on Disney property is with renting, it seemed too impossible for me to estimate rack rates and discount codes both with taxes that would be available throughout the years. Obviously, if I figured in rack rates it would be a much larger savings, but I always try to find discount codes for our trips.

Am I way off here? Or does this seem like a loose estimate to show hubby?

Thanks!

 

[Dean]

There are all types of ways to look at DVC and whether it's right for you. I actually like your approach of compairing the ownership to renting the same number of points every year. Then your question is whether that number of points and type of accomodation is right for you. Good luck.

 

[Maistre Gracey]

What does DVC actually cost??? About $6.00/point per year.
If you buy at $74/pt ($84 less MB), and you can use that point 38 times (39 less MB), then you can spread the cost of that point over 38 years. This comes out to be roughly $1.95/pt per year. We must add to that our maintenance fee of roughly $4.00/pt. You can see that a point actually costs you about $6.00/year. This will increase every year as maintenance fees increase, but that's okay because the price you are comparing it to will also increase. (Actually, the point cost will rise at a slower rate because the purchase price is not affected by inflation).
Now it is simple math. If your stay requires 200 points, then it is actually costing you $1200.
Personally, I would not figure at $10/pt (rental fee) unless you would actually buy the points, then rent them for $10/pt, then pay cash for the DVC ressie. It is my belief that not many will actually do that.
Some will figure lost investment income on thier DVC purchase. I do not figure this for several reasons, but if you choose to, don't over estimate it. It is not as much as you might think.

This is just one opinion and one method to figure the advantages of buying. There are others, and I really can't say any are wrong. It's really what you are comfortable with.

Good luck, and don't be affraid to ask questions..........

 

[Caskbill]

Keeping it simple is always a good thing. Sometimes another example might help.

Would you rather buy your own house of rent a house from someone else.

Say you purchase a house today with a 30 year mortgage and pay $1000/month. With a fixed rate, that $1000 payment will still be $1000 at year 29. After 30 years you own it and can live there the rest of your lives without any further monthly payments.

Or you could rent the same house, let's say for $800 per month. Your landlord raises your rent 3% every year, so by year 29 your monthly rent is now $1885 / month, you don't own the house, and can expect rent payments to continue to go up as long as you live.

Yes, by owning you paid property taxes and insurance over the years but you still come out ahead over renting.

DVC is the same thing, you're owning instead of renting. You lock in the current purchase price for as long as you own the loan. And at some point in time the loan is paid off and then you only have dues. Only dues will go up. If dues go up 3% a year for 10 years, then in 2013 your $4.00 / point dues will be $5.38 / point.

If you rent today at $10 / point, at 3% inflation then in 10 years you can expect to pay $13.44 / point for rental. (Dues went up about $1.38 while rentals went up about $3.44). And that's after only 10 years. For 150 points that difference in year 10 is $309. The differences will escalate all the way to the end.

In fact looking at 10 years, just dues versus rentals, at 3% you would pay about $7685 total in dues, or about $19,212 total for rentals.

I did some math for you. At 39 years the difference paid between owning (dues only) and renting, assuming 3% annual inflation on each, is $67,860 real dollars. That's equivalent to $27,150 in today's dollars, or very close to your $25,326 estimate. So what you did was a very good (and simple) way to look at it. Nice going.

Also, actually I can remember when rentals were more like $5.00 / point so rental rates have actually gone up faster than 3%.

If everything else about DVC is a good fit for your family, and you're comfortable with the idea of going to Disney as often as you have in the past, then you're definitely better off to purchase than rent.

Be sure to post back and let everyone know what you finally decide.

 

[lenshanem]

Thanks everyone! The replies were very helpful. I actually have been thinking a lot about this today and have thought of several other ways to look at it. I might fool around with it in a bit since everyone is now asleep. I'm hoping to at least call for an information packet and preapproval form, then maybe talk hubby into the tour next month while we're there for a few days.

 

[lenshanem]

Here’s something else I came up with totally different. Once again, I’m not taking into account inflation, etc. Estimating worse case scenario of 10 year loan and only 1,100 down as deposit to make nice even amount of 10,000 to work with.

12,600 - 1,500 credit = 11,100
1,100 down = 10,000
12 months x 10 years = 120 months
10,000 / 120 months = 83.33 (round up to 85)
595.50 dues / 12 months = 49.625 (round up to 50)
85 in payments (round up to 100 estimating included interest) + 50 in dues = 150 per month
150 x 12 months = 1,800 per year paid out for 10 years
renting same number of points = 1,500 (150 points x 10)
1,800 - 1,500 = 300 extra we paid per year for 10 years
300 x 10 years = 3,000 extra total
1,500 by renting - 595.50 in dues (round up to 600) = 900 saved per year after 10 years
3,000 extra paid / 900 saved = 3.33 years to pay off difference of renting versus buying

So we would only pay 3,000 extra over the course of 10 years for our vacations, but this would be made up in only 3.33 years and then at that point there would be a 900 savings per year until 2042.

Am I losing it or does that make any sense?

 

[jimmytammy]

Your last formula made since, but try breaking in down on a yearly basis. My conclusion is we can take a annual trip this year during value season and save approx. $620 over 7 days on pts. verses cash. The way I look at that is we can have nice accomodations for the next 30+ yrs and our price will not go up. Try taking a Birnbaums guide and do some fair comparison for comparable trips. Its simple math but it does the trick for me. Reinforces the fact for us that DVC is right for those who at least make an annual trip to WDW.

 

[lenshanem]

Last try to justify purchase...
(And then I give up and I'm going to bed!)

our next trip 620 for 4 nights AKL (with code discount)

DVC point usage examples give or take a few points for 10 nights compared to nights above -

4 nights BCV or similar (April spring break - 76 points)
rack 1576 plus 11.5 tax
3 nights VB ocean view (March spring training - 39 points)
rack 915 plus 11 tax
OR
3 nights VB ocean view (summer - 36 points)
rack 660 plus 11 tax
3 nights BCV or similar (holiday season - 36 points)
rack 1347 plus 11.5 tax / rack 867 plus 11.5 tax (depending on before Christmas or after New Year)

Best case scenario from above choices using rack rates –
3103 plus tax
Worst case –
3838 plus tax

Estimated yearly DVC payment of 1,800 for 10 years, after that 600 per year.

Looks pretty good!

 

[jimmytammy]

This is my simple math at work....

We own 220 VWL pts. This year we are paying approx. $255 a mos. for pts. and annual dues. 255x12mos.=$3060.00

We are going on our annual trip to WDW in Dec. value season for 7 nights. If we were to pay cash for that same 2 bedroom we would be paying $3640.00, and that is based on last years prices.

We still have pts left for a short stay in a studio if we choose to do so. Breaking it down on a year by year basis is simple for me. And this is an actual real case scenario. And everyone is aware that prices will continue to rise. We have been members for just over a year and IMHO we are already saving $$s. Granted we would probably be staying at All Stars and be OK with that but our soon to be teens DD and DS wont be sharing the same bed forever.

I hope this simple analogy can help some.

 

[Disney Doll]

Don't overthink it. If you can afford it without causing your family financial hardship, then do it.

Overall, it is not a bad investment from a financial standpoint, and it's a great investment from a vacation, mental health, and family time together standpoint.

Everything is not dollars and cents.

Plus, if you do it and decide it's not for you, it's easy to sell.

 

[JOC]

Don't overthink it. If you can afford it without causing your family financial hardship, then do it.

Good advice...I agree with Disney Doll.

 

[Richnj]

Just think of it as your own home at WDW that you have to share with 51 other families. Not a bad deal for 39 more years!

 

[vernon]

I think both your "workings out" made a reasonable amount of sense. I guess I looked at it about 4 or 5 different ways before deciding to take the plunge ( but I do like playing with numbers ) It's what makes sense to you that's important as you are most likely to be able to explain your own "formula" better than using someone elses.

I think one of the more reliable ways to look at it is to use a "diminishing" return/capital investment. Let's say for example you're going to buy 150 points, thru a resale you should get it for $10,000 or less. If you're borrowing at say 8% you have a cost of $800 for the loan and about $450 for dues. If that provides you with hotel accommodation that would have cost you $2,500 hopefully you'll pay off the $1250 you've saved so the next year your costs are $450 in dues and $700 in interest. Hopefully this will continue until you pay off your loan and your only cost is the rather smaller amount of "dues" you have to pay each year.

Obviously if you don't have to borrow the money ( or the lower rate you can get) will make it quicker to pay off. There are also a lot of ways to make your points go further. Avoid/minimise weekends would be the biggest, but there are other ideas that have worked for people. I know there are a lot of people that have brought relatives with them and charged their relatives a decent market price for those points. In my own case I worked on the cost of a room at an All Star , when the relatives had the use of the second bedroom ( basically a studio) at OKW, they also had the use of the kitchen.laundry and living rooms of the 2 bedroom unit. Some people frown on this as "using" your relatives to fund your purchase, but they wanted to come on vacation with us ( this was discussed before we bought into DVC) and would have wanted to stay next door to us anyway. IMHO they got better accomodation at a cheaper price and were close to their grandkids. I think it cost them about $80 per night for their rooms, which at the time to book the same room ( without the access to kitchen and laundry) would have been $200+ . I understand that it's not an idea that works for everyone, but it is a good way to help you with the cost of DVC and if in the future ( after it's paid for) you want to treat them, then you can . Again it's more cost effective to use your points in their use year ( or before) as opposed to rolling them over for the next year.

There are other very important factors, like quality of experience, family time etc etc, but IMHO you're 100% correct to make sure, financially , that you can justify the expence. Once that is done, you can really get on with the serious side of enjoying your vacations.

 

[dmoore22]

I used a very unscientific method to choose DVC. First, I looked at how much I spent the last two years @ All-Star Movies with my DW and 6 DKids using my Disney Club Discount. Then I priced what it would cost to stay at OKW for the same amount of time. Whoa! I compared that cost to the purchase of points resale plus the yearly maintenance fee (property tax is deductable!). Suddenly I'm able to stay with my family in a 2 BR at OKW for twice the length of previous vacations and still bank points! How did I pay for this. Well, many years ago I bought stock in Disney which has had several splits along with appreciation. I sold off enough to pay for the membership plus still maintain a DIS portfolio. The stock has been flat while the cost of DVC resales has gone up more than Disney stock. Hence I also rationalize that this is an investment that provides more entertainment than staring at stock certificates.

 

[ncligs]

Originally posted by dmoore22
I used a very unscientific method to choose DVC. First, I looked at how much I spent the last two years @ All-Star Movies with my DW and 6 DKids........