How do I assign a dollar value to each point?

[#1minnie]

I'm trying to decide if it is better to use points to go to Disney's Grand Californian or to just pay cash? So, how do I assign a dollar value to my points to determine this? I looked on the rental board and many members rent their points for around $10. Is this the norm? If it matters, we bought points last year at $87 pp at Saratoga.

Forgive me, but I'm just really tired to try and figure this out, we just returned today from our first trip on the Disney Magic and it was wonderful! So, now I'm already planning our next trip!

Thanks

 

[Plutofan]

You could probably rent your points easily at $10 per point.

 

[Disneymooners93]

Since I am new I may find the way I value my points may change, but here is how I did it when deciding to buy.

Your points cost $87, that divided by 49 years (assuming 2005 buy-in) equals $1.78/pt/yr. Add annual dues of $3.98/pt. That gives me a total value of $5.76/pt. This is what I feel I've (you've) paid for it. Of course, this will go up with increases in dues over the years.

I am also looking at GC or DLH for June. A night at DLH for then is 23 point. 23 points multiplied by a value of $5.76/pt equals $132/night. Subtract the taxes and resort fees (if you drive) and it comes to an equivalent value just over $100. That is good value versus rack rate, any discounted rate, or even the off site hotels for the dates I'm looking at.

Another way to look at it is rental price. If you can get $10/pt renting, then instead of 23 points you get $230. You may be able to find a cash rate better than that, so you may come out ahead. (Of course minus whatever hassle renting is).

I do plan on renting occassionally, but I bought my points to use. In general, as long as the point cost is not out of line with cash rate, I plan on using my points.

Not sure if this makes sense to you. Again being new I may be missing an important detail (or many). I'm sure a DVC veteran may have a different view with my assessment.

There have been other threads on how to value your points, with several different thoughts. Hope this helps.

 

[#1minnie]

thanks for your thoughts...and your math!

I agree with you that we bought the points to use them and we will, we even used them for our cruise and I know people think that's not wise either, that paying cash is better. But after just shelling out $24K for the membership, we were not about to PAY for the cruise as well, and it was a nice way to do it.

 

[TCPluto]

You could probably rent your points easily at $10 per point.

You can easily rent for $11-12 pp. Those that rent for less don't realize they have a commodity they are giving away needlessly.

At $12 pp, you still save the renter over 50% off of a Disney Direct reservation.

 

[#1minnie]

just to be clear, I'm not looking to rent my points, just decide if I'm technically "overspending" if I use them at Disneyland. Meaning, should I just pay the cash rate for Disneyland and use my points at WDW on another trip, know what I mean?

So if I'm looking at Std view, Grand Californian during Value Season, it's 29 points per night. So, do I value that at roughly $290 a night? Should I see if I can get a better cash rate and then use my points at WDW later on?

Sorry if I wasn't clear before.

 

[Horace Horsecollar]

Your points cost $87, that divided by 49 years (assuming 2005 buy-in) equals $1.78/pt/yr. Add annual dues of $3.98/pt. That gives me a total value of $5.76/pt. This is what I feel I've (you've) paid for it. Of course, this will go up with increases in dues over the years.

There's a flaw in that logic. Simply dividing a large cost by a large number of years doesn't provide a realistic per-year value.

To give an exaggerated example, $1,000,000 in one year is worth far more than $1 per year for a million years.

I agree that valuing points around $10 per point for points vs. cash evaluations makes sense. It's a good sanity check when using DVC points for any of the "Collections."

$87 invested at 7% long-term return produces $6.09 per year in investment income. If you add $3.98 in dues, the total is $10.07. You can try this math with other investment return percentages.

However, in the end, the best use of DVC points is to have the best possible vacations every year, and not to let any DVC points go to waste. Perhaps Disney's Grand Californian isn't the highest use of points, based on a strict financial evaluation. However, if someone plans to go to California instead of Florida one year, using DVC points that are already paid might be much better than spending thousands of dollars of "real" money.

 

[Judique]

However, in the end, the best use of DVC points is to have the best possible vacations every year, and not to let any DVC points go to waste. Perhaps Disney's Grand Californian isn't the highest use of points, based on a strict financial evaluation. However, if someone plans to go to California instead of Florida one year, using DVC points that are already paid might be much better than spending thousands of dollars of "real" money.

Excellent post. There are many things to consider when putting a value on how one uses their points. I for one do not want to be in the rental business, except to possibly dispose of expiring points and I've only had that happen with a very few. The idea is to take a vacation.

 

[Doctor P]

There's a flaw in that logic. Simply dividing a large cost by a large number of years doesn't provide a realistic per-year value.

To give an exaggerated example, $1,000,000 in one year is worth far more than $1 per year for a million years.

I agree that valuing points around $10 per point for points vs. cash evaluations makes sense. It's a good sanity check when using DVC points for any of the "Collections."

$87 invested at 7% long-term return produces $6.09 per year in investment income. If you add $3.98 in dues, the total is $10.07. You can try this math with other investment return percentages.

As someone who teaches this type of analysis on a regular basis, Horace, I will just tell you that your approach is significantly more flawed than the one you criticize. Frankly, I am sick and tired of people on this board trying to do an analysis of the cost of points and criticizing others reasonable analysis when they have little or no clue as to how to appropriately do the analysis themselves. Suffice to say that X% return has NO place in the equation given the question that was asked, and that the simplistic version presented of taking one's point cost and dividing it by the number of years and adding maintenance costs is actually not going to be far off the sophisticated means of doing the analysis (I did it both ways a couple years ago just to confirm this--the sophisticated model would have approximately 15 variables in it). Though the cost of points will vary depending on the specifics of an individuals purchase, estimating the cost at $6-7 is about correct for most people. The VALUE of the points is another story--that is where opportunity cost might come into play.

 

[greenban]

As someone who teaches this type of analysis on a regular basis, Horace, I will just tell you that your approach is significantly more flawed than the one you criticize. Frankly, I am sick and tired of people on this board trying to do an analysis of the cost of points and criticizing others reasonable analysis when they have little or no clue as to how to appropriately do the analysis themselves. Suffice to say that X% return has NO place in the equation given the question that was asked, and that the simplistic version presented of taking one's point cost and dividing it by the number of years and adding maintenance costs is actually not going to be far off the sophisticated means of doing the analysis (I did it both ways a couple years ago just to confirm this--the sophisticated model would have approximately 15 variables in it). Though the cost of points will vary depending on the specifics of an individuals purchase, estimating the cost at $6-7 is about correct for most people. The VALUE of the points is another story--that is where opportunity cost might come into play.

Dr. P.

Have you ever posted more about your 15+ variable formula?

Is it something you're willing to share?

Having enjoyed your posts over the years, I'm certain that your model will be exceptional, and saddly to say, the geek in me loves this stuff!

-TIA

-Tony

 

[dcfromva]

#1minnie,

I generally use Disneymooners93's first method for figuring out if renting is a good value. I have used points for the GC 3 times and the DLH once, so far.

Even using the second method, ($10/ppt) the prices have been on par to what I could get the room paying cash (trying for an AP discount, if available). Renting points at 10/ppt to someone else and then using the proceeds also has another level of complexity--leading to a whole 'nother discussion (presumably, there is a taxable gain on the profit...or, maybe not, depending on the interpretation.... And, I have seen the basis for the profit subject to intrerpretation, too. )

In our case, we almost always go during high demand periods (Spring Break, Summertime, Summertime-the day after the 50th Anniversary celebration... ) making it difficult to get an AP discount. In all 4 situations, some of the nights had been sold out using cash, but we have found they had availability using points....

-DC

 

[Doctor P]

No, greenban, and it really isn't that sophisticated per se, but rather just a bit more thorough. In theory, you need to put in a real interest rate, an expected rate of general inflation, a separate rate of inflation in maintenance fees, a separate rate of inflation in rack room rates for competing Disney rooms, a rate for competing rooms at other Orlando hotels, a rate of interest on risk free savings, a rate of interest of taxable investments, expected income tax rates and changes in income tax laws AND DO THIS FOR EVERY YEAR TILL THE END OF THE CONTRACT!!! And, because this is correctly analyzed as a prepaid expense rather than an investment, per se, you have to use a declining balance approach to any alternative sum to put aside as the amount you prepaid into DVC (i.e., both scenarios must have you taking vacations at the same rate and time of year, otherwise you are not comparing apples to apples).

In actuality, unless you make drastic assumptions about the parameters, the quick and dirty method works pretty good. Generally, the effects of inflation are for the most part going to cancel out on both sides of the equation in this particular type of calculation, so ignoring inflation is generally OK. Second, the rates of return on investments that people cite are not appropriate because they don't take liquidity or transactions costs in account, nor do they account for the erosion of principal that occurs with a prepaid expense. Third, it is true that there is a time value of money apart from inflation, however, there is also a financial and psychological value to predictable expenses that must be given a role in the equation if you consider the time value of money. Unlike most time value of money problems, it is not simply a question of buying now versus later, but a question of buying now and fixing the price of services you buy till the end of the contract. This needs to be accounted for. For someone that is buying DVC, it is not inappropriate to assume that the value of the fixed price is equal to the real time value of money (that is the value outside of inflation factors), thus the time value consideration can be discounted away. This is all a bit esoteric way of saying that dividing your total cost of points (add the financing charges if you want) by the number of years remaining in the contract is a reasonable way of figuring what the points COST you upfront, and then adding the current maintenance costs is a reasonable way of figuring the annual cost since anything you buy with the points will be inflating at the same or similar rate to the maintenance costs (in the OP's question, the points for DL resort hotels can be assumed to go up at at least the same rate as the inflation in maintenance costs so valuing the points in constant dollars using today's maintenance fees is just fine and actually highlights how the costs of exchanges will likely continue to increase). The comparison for DVC resorts would be a comparison of the calculated cost of the points reservation (which will remain fairly constant in REAL terms) with the nominal cost of alternative accomodations (either cash at a DVC resort, or cash at a non-DVC resort).

 

[greenban]

ohhhhhh kay.

Dr. P. I appreciate the listing of the variables, and I actually understand several of them besides inflation (namely the time value of money)

I appreciate your detailed reply BTW, I hope to set up a spreadsheet with more variable than I currently have running.

I (FWIW) agree with the definition of pre-purchase asset with a declinging value, and would agree that the rough guide you listed is probably with in a percentage point or so, of 'truth' (if I have paraphrased/interpreted correctly?)

Impressive work, are you an Actuary?

-Tony

 

[Doctor P]

No, not an actuary. Most of my training is in economics and accounting, and I have taught financial analysis and statistics for....over two decades (gosh that sounds like a long time). The hard thing to learn over the years is that quick and dirty often beats sophisticated when time, effort, and the minimally increased precision from rigorous methods are all factored in.

 

[Pa@okw95]

Forget what the people that rent tell you the points are worth. Take the retail value of what you would normally use your points for then divide by the number of points you need. For example we normally go in January and stay in a one bedroom at OkW which costs about $400 per day if you pay cash. I use points instead so I take the 16 points per day and divide it into the cost per day(400) and I get $25 per point. Renters are underselling their points which is why renting points is such a steal, best buy anywhere.

 

[Deb & Bill]

We are staying at Grand California this summer for three nights. We looked at using our points, but decided the 100-150 points could be put to better use Spring 07. So we used our Disney VISA card, got 6 months interest free and lots of other benefits.