Has anyone done an analysis of points?

[Didney Daddy]

We own points at BCV at are convinced of their long term value and savings. We plan on visiting there each year and have done so for a long time. It is a family tradition.

However, we also love to go on a Disney Cruise each year in conjunction with the Park stay. We are debating buying more points to cover the cost of the cruise. What we need to know is the economic trade off of just paying cash for the cruise each year or buying sufficient points to rent out to cover the cost of the cruise?

For example, if the cruise costs $3,500 cash we could buy 350 points to rent or buy the 550 points it costs to go through DVC. The latter just does not make sense but I am curious to see if anyone has analyzed buying enough points that we could rent and obtain the cruise that way? My take is as follows:

Seems like it is a function of the present value of $3,500 payments escalating at 4-6% per year which is the cash option OR a $35,000 up front investment plus a stream of maintainence payments to generate a $3,500 cash payment to me. The net tax free return on a 1 year invesment is currently 2-2.5% which is $700 per year investment return plus the 5% fees which is $,1750 per year for a total of $2,500 per year cost. Lastly, you need to consider the fact that the $35,000 goes away in 40 years so you lose another $1,000 per year in amortized costs which equals $2,750 annual cost.

So, my feeble analysis indicates that there may be some merit to buying the points and renting them versus paying cash. I am assuming that since these are reservation points there is no need for assuming a rent rate increase since the resevations points increase in proportion to the underlying increase in annual cash rates for the cruises.

Help?

 

[Dean]

The option to do the cruise and the costs for the cruise are not guaranteed and have gone up a lot in the past. But if you invested the upfront cost of 350 points even in a CD or similar and counted the yearly dues, you could get together a guaranteed $3500. No risk, no uncertainty, nothing to think about.

I'm sorry but I don't understand why some people want to complicate their lives for the privilege of spending more money. I could understand the risk and finagling if you were going to save 20-30% for now and take your chances for the future. And IMO, it would take at least that amount of savings to even begin to make it worth taking the chance. Not to mention the fact it that the system could vanish tomorrow.

But I guess the real question is whether it makes sense to buy to rent out, period. IMO, it does not in todays situation but likely did in the past. The curve has shifted enough that I don't think the numbers add up. But it depends in part on how you approach renting. If one wanted to pluck high demand times avoiding weekends and go the ebay route, it might indeed work out for you esp if you went resale. But given the risk of the venture, I'd think one needs a return of 12% minimum, more in the 20% range to justify the approach. Ov course if one wants to use part of the time and rent part of the time, it would be easier to justify.

 

[Didney Daddy]

Dean,

Thanks for the reply, I enjoy reading your posts. First off, my previous post had wrong math. Total costs of buying the points is approx. $3,750 per year in this scenario while the expected renting benefit is $3,500 per year. The math does not work. Since both the costs of DCL should rise at least with inflation and the purchasing power of reservations will not commensurelty increase, this does seem to be a bad trade.

I disagree with using CD's returns since the only return that should be evaluated is the net after tax return, you could use a CD but the aftertax return will still be 2.0 - 2.5% per year.

Your statement that benefits are uncertain is true and it demands a premium which does not exist as well.

My question was to determine if I am missing something in that so many folks seem to buy and rent and I wanted to know if their is some economic advantage other than someone just having points they cannot use and therefore seeking some utility out of them. From our analysis, the answer seems to be no but am curious to see if others have a differnet take.

Thanks for the feedback.

Didney Daddy

 

[Dean]

Dean,

Thanks for the reply, I enjoy reading your posts. First off, my previous post had wrong math. Total costs of buying the points is approx. $3,750 per year in this scenario while the expected renting benefit is $3,500 per year. The math does not work. Since both the costs of DCL should rise at least with inflation and the purchasing power of reservations will not commensurelty increase, this does seem to be a bad trade.

I disagree with using CD's returns since the only return that should be evaluated is the net after tax return, you could use a CD but the aftertax return will still be 2.0 - 2.5% per year.

Your statement that benefits are uncertain is true and it demands a premium which does not exist as well.

My question was to determine if I am missing something in that so many folks seem to buy and rent and I wanted to know if their is some economic advantage other than someone just having points they cannot use and therefore seeking some utility out of them. From our analysis, the answer seems to be no but am curious to see if others have a differnet take.

Thanks for the feedback.

Didney Daddy

You seem to be thinking clearly though I think you can get an after tax guaranteed return far higher than you think that is reasonably secure. I think the couple of people who I know of who bought mainly to rent out did so some time ago. DVC is near the top in terms of resale price. It should level off and slowly decline starting in likely around 2015 or so but exactly when and how fast will depend on variables we don't know yet related to room prices, ROFR and new DVC resorts.

 

[YoMickey]

Why limit yourself to Disney Cruises. While it's nice to pair them together for vacation, there are some very nice cruise lines with wonderful packages all over the world. I've always thought the DCL was pricey compared to Royal Carribean or Princess. Looking at DVC pts as an investment is.........foolish. DVC pts. are a luxury, an indulgence...whatever you want to call them...just don't call them a vehichle to make money.

$.02

 

[tomandrobin]

DVC is near the top in terms of resale price. It should level off and slowly decline starting in likely around 2015 or so but exactly when and how fast will depend on variables we don't know yet related to room prices, ROFR and new DVC resorts.

I can see and understand the price per point slide as the "end of contract" approaches. But don't you think that would mostly effect the resorts that are going to expire and resales of those resorts. I think that it would drag SSR and the future points as well, but not as much. However, I do also think Disney will intervene so not allow the newer resorts and future sales to be impacted by the free fall of the older resorts. Not sure how, but I'm also guessing that unless they extend the expiration of the older resorts, they are going to seperate the newer resorts from the older. Maybe, not allowing the older resorts to trade into the newer resorts. That would keep the point value proped up for them. I think I saw recently someone suggest SSR is the new OKW. They might be right! After SSR, maybe the next couple of resorts will be more of the hotel, boutique resorts.

 

[bom_noite]

Maybe, not allowing the older resorts to trade into the newer resorts.

Very interesting theory! Disney could immediately build a resort at Contemporary and one at AK and then say: Ok - now we are grouping them in to two different sets of resort packages. Some would be upset - but - I think it a very sound idea.

Not sure they can do this - but - it would certainly solve certain issues!

 

[Didney Daddy]

I agree that DVC is not an investment but I am trying to determine what is the best way to "spend" the money for a vacation.

I received an interesting PM from a member that asks me to consider the fact that setting aside a dollar amount that would earn interest would be a greater investment than the cost of DVC.

For example, if you purchased $50k worth of points, that would theorettically deliver $5,000 of vacation value. In order to generate $5k of vacation value you would have to invest for an after tax return of 4% approx. $125k. If you did not do that, and you invested only $50k in a 4% after tax return vehicle then you would deplete that principal over time - basically after 15 years your principal is gone and therefore have no vehicle earning interest dedicated for vacations.

If that is true, the DVC plan continues to deliver value for years 15-40 when the alternative strategy is essentially an expense out of pocket at the then current rates.

He went on to state that even if I used some of those points for DCL periodilcally, I would still be obtaining vacations at a reduced value versus paying cash because my estate is theoretically reduced by the above depletion of investment capital because the cost of vacations by cash is greater than the returns generated by a dedicated invesment pool for cash vacations.

Interesting theory. I do not know if I buy into it but it is the first time I have considered the fact that if you look at it from a total net worth perspective that DVC is better than you think. To be fair, he also stated that using resale Marriott etc... is an even better deal.

Food for debate. I appreciate everyone's comments. I am just trying to think through all the issues about the number of points to buy.

 

[TammyAlphabet]

I would like to give you some gentle advice: Buy as many points as you can afford because ten years down the road you will say, "Gosh, I wish I had bought more points back in 200x, because they sure were cheap then." And secondly, with all this analysis, you are really going to need a nice long vacation to relax and rest your brain.

I am an accountant and will graduate this May with a Ph.D. in accounting. And I know that if you do enough calculations, you can either prove what a great deal it is or what a waste of money it is.

I bought DVC in 2005 after six months of prodding my husband. My husband (NOT a disney lover) asked me if it was a good investment. I hesitated. I could have said that it was and he would have believed me. But, in my heart, I knew it was a lie. It is not a good investment $$ wise. It would be best $$ wise to stay home and put the money in the bank. I said no. But he did agree to buy in since I really wanted it.


I bought DVC with my heart and not my head. I wanted to look back at all the great times with the kids while they are young and bring my grandkids some day. I am so cheap that I would never do that without DVC, my rational money saving side would not allow me so many frivolous vacations.

In other words, I think most of us buy in with our hearts first, then look for the numbers to justify our expenditure. The same as we do with houses, cars or anything else a person's heart my desire.

The final question is: What is your heart telling you do do?

 

[CarolMN]

Don't forget to factor in your time and effort - rental transactions do not always go smoothly. Eventually, you are going to get involved with someone who is "high maintenance". Once such encounter can quickly sour you on renting to strangers, LOL.

Best wishes -

 

[Lenc324]

For me there was no analyzing of points and how much it's going to cost 30yrs down the road. It was an big investement for me but I love Disney, I'm going to use it at least twice a yr and have fun. When you are ready you just do it.

 

[rinkwide]

...Eventually, you are going to get involved with someone who is "high maintenance".

And, if you're not careful like me, you might end up marrying her.

 

[tomandrobin]

The only way I look at DVC as an investment is its an investment of vacations and memories. You can't look at it as a return on money. I could have taken my $30,000 put it in a cd or bought some stock/bonds etc. The returns over time are good, but how many years of vacations do I lose before I realize that I can't get them back. I spent my 20's working my **** off. Made money, had success, blah blah blah. But I realized in my thirties that there is more in life then work work work.

You can analize it 100 different ways. If you love Disney and want to go there almoset every year, then its an investment for future hapiness for you and your family!

 

[Didney Daddy]

As most of you guys have figured out, I am a wee bit analytical but deep down I am just a big softy which is why I love the Disney Magic.

Thanks for all the great feedback. I hope this helps a lot of other folks too as though go through this process of agonizing over how many points to buy.

Well, it's a small world!

 

[Dean]

I can see and understand the price per point slide as the "end of contract" approaches. But don't you think that would mostly effect the resorts that are going to expire and resales of those resorts. I think that it would drag SSR and the future points as well, but not as much. However, I do also think Disney will intervene so not allow the newer resorts and future sales to be impacted by the free fall of the older resorts. Not sure how, but I'm also guessing that unless they extend the expiration of the older resorts, they are going to seperate the newer resorts from the older. Maybe, not allowing the older resorts to trade into the newer resorts. That would keep the point value proped up for them. I think I saw recently someone suggest SSR is the new OKW. They might be right! After SSR, maybe the next couple of resorts will be more of the hotel, boutique resorts.

I think we're saying similar things but from opposite ends. When, how fast, etc will depend on ROFR, new resorts selling etc. However, I suspect prices will start to moderate with around 26-28 years left on the contracts. They will likely take a slow swan dive over the years. We can quibble on when, how far out etc, I don't see how anyone could disagree with the ultimate outcome though some have. There are those that think DVC will hold it's full value right up until the end and I need to find something to sell to them like swamp land.

 

[Dean]

For example, if you purchased $50k worth of points, that would theorettically deliver $5,000 of vacation value. In order to generate $5k of vacation value you would have to invest for an after tax return of 4% approx. $125k. If you did not do that, and you invested only $50k in a 4% after tax return vehicle then you would deplete that principal over time - basically after 15 years your principal is gone and therefore have no vehicle earning interest dedicated for vacations.

If that is true, the DVC plan continues to deliver value for years 15-40 when the alternative strategy is essentially an expense out of pocket at the then current rates.

the math is flawed because it fails to consider the affect of maint fees yearly. $50K would get you about 666 points depending on home resort. Fees would be around $3000 per year, more for some resorts. Thus that $50K would give you a guaranteed return equal to your expected annual rental income without the hassle and risk. While rental income might increase over time, also would yearly fees. But there would be a purchase price that would be reasonable so if DVC stops with ROFR, all of these issues will change.

 

[tomandrobin]

I thought Disney had dibs on all the swamp land! LOL

I agree, the point value will drop. You wouldn't pay top dollar for a car that has no engine. I'm just curious how Disney is going to seperate the expiring resorts from the newer resorts to keep thier value proped up.

 

[Dean]

I thought Disney had dibs on all the swamp land! LOL

I agree, the point value will drop. You wouldn't pay top dollar for a car that has no engine. I'm just curious how Disney is going to seperate the expiring resorts from the newer resorts to keep thier value proped up.

I doubt they'll have to as those that expire in 2042 will separate themselves. The home resort priority will take care of that issue otherwise. But I think we can certainly expect a suspension of banking at least the last couple of years, the fate of borrowing is much less obvious. From a price standpoint, I also think that will take care of itself. I certainly don't expect DVC to be selling new timeshares into the time when prices are truly plummeting but we shall see. If they are, I'd think that just the time remaining on the contract will control the resale price and DVC will easily move to just not worrying about it as the affects on retail sales are likely to be minimal. But we shall see and have even longer to bat that one around.

 

[tomandrobin]

Well, unless they extend the contracts of the 2042 resorts, I see a definate two tier system. But that would also mean two or more additional DVC sites. Which we hear rumors about.

 

[Olaf]

I thought it was high at $72 a point in 2001. I'm very glad we bought in then. That being said, cruising on points has never looked very attractive to me, unless you just have points to burn.