How Long To Recoup Your Initial DVC Cost?

[bakerworld]

Been members for a decade, and we are down money.

We have had wonderful vacations, stayed in nice accommodations, put our kids in a separate room and would be able to sell for what we bought. But without DVC we'd never vacation at Disney as often, wouldn't stay in a multi room unit when we did. We certainly wouldn't have paid lodging expenses for friends and family.

Its been a good value, but "break even" - no.

how 'down $' if 'would be able to sell for what bought' because to me that sounds like you've had 10 years of free accommodations.

 

[Missyrose]

how 'down $' if 'would be able to sell for what bought' because to me that sounds like you've had 10 years of free accommodations.

In your scenario, the "accommodations" may be "free" (even though they're not because of MFs), but the plane tickets/park tickets/food bills cost a small fortune for all those Disney trips. So it's relatively easy to use formulas that combine upfront costs and MFs to produce some future "break-even" point. But even though you may break even or save money using DVC for accommodations, you've like dumped a good deal of those savings back into the rest of what goes into a Disney trip, or the more frequent Disney trips, or the longer Disney trips or even the Disney trips that use bigger villas than when you first did your cost analysis. So when people say DVC saves you money, what they actually mean is DVC gives you new ways to spend that money at Disney.

 

[ELMC]

10 years is an arbitrary point in time. Why not pick 5? Or 15? Or 20?

When you look at any investment and want to calculate the return on investment, you evaluate your projected cash flow against your initial capital outlay and come up with a discount rate. That discount rate is your ROI. An ROI of mid to high teens is definitely indicative of a high risk investment. The question is whether you think the actual risk is higher or lower than the implied ROI. If it is, then you don't buy. If it is not, then you buy.

Ten years out isn't an arbitrary number. It is right around the point where many resale contract owners would have earned back their initial cash outlay had they decided to rent out the points every year. At that point, the value of the contract is the "profit" of the "investment" should the owner decide to sell. That is why I used that as the length of time to discuss DVC as an investment.

 

[Galun]

Ten years out isn't an arbitrary number. It is right around the point where many resale contract owners would have earned back their initial cash outlay had they decided to rent out the points every year. At that point, the value of the contract is the "profit" of the "investment" should the owner decide to sell. That is why I used that as the length of time to discuss DVC as an investment.

I should clarify. Ten years is an arbitrary number to pick for the contract to be worth zero. The only time where the contract will be worth zero for certain is at the end of the contract. The risks that many here had outlined can materialize in 5 years, or 15, or never. That's what I mean by 10 years being an arbitrary number. The length of time it takes for the owner to break even is irrelevant to the ROI calculation.

 

[crisi]

In your scenario, the "accommodations" may be "free" (even though they're not because of MFs), but the plane tickets/park tickets/food bills cost a small fortune for all those Disney trips. So it's relatively easy to use formulas that combine upfront costs and MFs to produce some future "break-even" point. But even though you may break even or save money using DVC for accommodations, you've like dumped a good deal of those savings back into the rest of what goes into a Disney trip, or the more frequent Disney trips, or the longer Disney trips or even the Disney trips that use bigger villas than when you first did your cost analysis. So when people say DVC saves you money, what they actually mean is DVC gives you new ways to spend that money at Disney.

We are also missing gains on the "investment" - the $10k we put in in 2002 was when the market was down - we'd have lost those gains again in 2009, but the market has more than recovered. And I have a balanced portfolio, I never lost all my gains anyway, because I had bonds that went up when stocks went down. That increases the amount of money we'd need to "save" by about 40% if compared against the portfolio I have retained since 2002.

DVC CAN save you money (you can recoup your costs) IF your travel habits don't change. We willingly changed our travel habits, but that means that we won't ever "recoup" our money - we spent it.

 

[Dean]

I'm just asking for some examples. And just approximate the likelihood, everyone knows predicting the future is difficult and I said that in the post. Personally I think the chances of DVC points being worth zero in ten years are vanishingly small. I'd be interested in hearing the rationale from those who have a different point of view on that.

As I tried to convey, I think the likelihood of DVC being worth zero is very small, however, I think the risk of DVC costing more to use than OOP between year 10 & 20 is between 10-25% if I had to put a number on it but it's guaranteed to be worth zero at some point and there's a great likelihood it'll cost more to own than it's worth at some point as well. As you note, it's simply a guess but I believe I have more info and experience than most in this area. IMO one should look at the worst case scenario, basically the parks closing and you losing your job the same week and consider where you'd be. One of the problems with timeshares is it could put you in a position to have to feed it so in essence it could be worth less than zero at some point and this is a fact I think most people miss.

I look at my investments as a way of funding my retirement (food, shelter, clothing, etc) while I look at owning and renting DVC points as a way of vacationing while I'm retired. So for me there is a definite difference on how I look at and treat the two.

Anyone who doesn't agree should likely take another look at their assumptions. However, I think there's more to it than that. IMO DVC, or any timeshare, should make sense financially first and foremost given reasonable and appropriate assumptions. I also feel one needs to seriously consider risk in the equation as well as one's financial situation. I'd further add, borrowing from other thread's on the subject, that being able to make the payments is not the same as being able to afford DVC or any other luxury purchases.

10 years is an arbitrary point in time. Why not pick 5? Or 15? Or 20?

When you look at any investment and want to calculate the return on investment, you evaluate your projected cash flow against your initial capital outlay and come up with a discount rate. That discount rate is your ROI. An ROI of mid to high teens is definitely indicative of a high risk investment. The question is whether you think the actual risk is higher or lower than the implied ROI. If it is, then you don't buy. If it is not, then you buy.

To a degree it is arbitrary but it's borrowed from a frequently used timeline related to high risk investments. I'd say less if reasonable, longer is not. Part of the issue is the scenario that most look at is the best case scenario and any variations from there are almost certainly going to be worse than the assumptions.

Been members for a decade, and we are down money.

We have had wonderful vacations, stayed in nice accommodations, put our kids in a separate room and would be able to sell for what we bought. But without DVC we'd never vacation at Disney as often, wouldn't stay in a multi room unit when we did. We certainly wouldn't have paid lodging expenses for friends and family.

Its been a good value, but "break even" - no.

I think this is true for most people partly because of the psychology involved. Many do the math on a studio then end up using larger units. Many also just spend the other money elsewhere. Of course there is the value that extends beyond the financials but that is so variable that it's impossible to compare one person to another.

I should clarify. Ten years is an arbitrary number to pick for the contract to be worth zero. The only time where the contract will be worth zero for certain is at the end of the contract. The risks that many here had outlined can materialize in 5 years, or 15, or never. That's what I mean by 10 years being an arbitrary number. The length of time it takes for the owner to break even is irrelevant to the ROI calculation.

See above, to me the question isn't when the contract will be worth zero but rather what time frame am I comfortable I should use to minimize the risk appropriately. The OP was about buying and renting and how long it'd take to recoup the investment. The 10 years value really only has meaning if one sells or plans to at that point. I've seen a lot of things in timeshares over the past almost 20 years, both DVC and otherwise, including special assessments, values plummet almost overnight, downgraded facilities, resorts leave systems (there are 9 FORMER Marriott resorts), even timeshares closed. Some would say "it'll never happen to DVC" and that may be true but there are no guarantees and I believe one should consider worst case scenarios then compare to reasonable assumptions. Even for DVC we saw values go from around 80% of retail to closer to 50% in a very short period of time.

 

[crisi]

I think this is true for most people partly because of the psychology involved. Many do the math on a studio then end up using larger units. Many also just spend the other money elsewhere. Of course there is the value that extends beyond the financials but that is so variable that it's impossible to compare one person to another.

As long as the decisions are made self aware and its affordable, it isn't a big deal. When we bought, we CHOSE to buy to go more often, bring friends, and stay in a multi room unit.

 

[Dean]

As long as the decisions are made self aware and its affordable, it isn't a big deal. When we bought, we CHOSE to buy to go more often, bring friends, and stay in a multi room unit.

Agreed, but that's different than the issue of whether it makes sense financially in any regard, ultimately anyone can make their own decision as long as it's legal. I know many want to believe that if one looked at the info and made a decision, it was a good one and I believe that's often not the case (not referring to you but in general). IMO many buy when DVC doesn't make sense for them and many buy when they couldn't truly afford it. Making poor choices isn't illegal in these type situations.

 

[sweetdana]

I juThis year the maintenance fees are $4.81 per point. So if someone paid $4.81 per point and sold them for $12...they'd realize a $7.19 profit per point.

Assuming a $11,000 cost to buy the contract....if I sold all 200 points each year and got a similar $7.19 per point profit...it would take me basically 7.6 years to recoup the contract cost. Am I looking at that correctly? Would anyone else like to share how long it took you to recoup the initial investment? I realize I didn't factor in what I'd lose by taking that $13,000 and investing it instead. I'm just curious to know if having that initital investment recouped in 7 years is a good deal...bad deal...or great deal.

This is assuming 1) cost of rentals will go up equal to cost of my increase. It is a bad assumption due to mf are based on costs ( and have significant inflation). And rental rates are based on supply/ demand. So 5 yrs from now mf could be 8$ and rents could be the same. Rents have only home up about 2$ since about 2008, and really that is very recent. Mf on every resort increase every yr.

And 2 you are assuming it is worth 0 in the end. Use it for 7 yrs, it's resale price might be 1/2 what you paid .. Or double for that matter. but neither will be worth zero.

And though you stated it time value of $$ is being ignored.

Resale ssr and. Akv are both a steal and IMO a good investment if you don't care where you stay. IMO a. Direct Blt or Akv contract would be a lot harder to justify. ( add in financed interest and even worse)

 

[MoreTravels]

The good thing is 'supply and demand' is controlled by only a few people. If Dave, Disboards, and another Mouse forum decide to rent at $14 per point then the non-member will have no choice. The rental rate will have to go up. With resale rate up by 10% since 2013, I expect people will ask for more money for rent soon.

 

[Galun]

The good thing is 'supply and demand' is controlled by only a few people. If Dave, Disboards, and another Mouse forum decide to rent at $14 per point then the non-member will have no choice. The rental rate will have to go up. With resale rate up by 10% since 2013, I expect people will ask for more money for rent soon.

I just bought my first DVC contract so I have no personal experience on the history of rental rates. To me one of the major risk factors is decoupling in the growth rate in rental rates for points vs. mf for points. I don't see any reason why they would decouple (as in mf growing much faster than rental rates) in the long run because rental rates for points should be correlated with Disney rack rates for rooms, and you can bet that Disney is going to raise room rates at a pace that will ensure continued expansion in profit margin.

Could there be temporary disruptions through economic cycles where rental points rates are depressed? Certainly. Will it normalize over time through economic cycles? I think so.

At the end of the day, one has to make assumptions that they are comfortable with and then make the decision from there.

 

[ELMC]

I just bought my first DVC contract so I have no personal experience on the history of rental rates. To me one of the major risk factors is decoupling in the growth rate in rental rates for points vs. mf for points. I don't see any reason why they would decouple (as in mf growing much faster than rental rates) in the long run because rental rates for points should be correlated with Disney rack rates for rooms, and you can bet that Disney is going to raise room rates at a pace that will ensure continued expansion in profit margin.

Could there be temporary disruptions through economic cycles where rental points rates are depressed? Certainly. Will it normalize over time through economic cycles? I think so.

At the end of the day, one has to make assumptions that they are comfortable with and then make the decision from there.

I can provide you with one potential reason why the situation you describe might occur. Maintenance fee increases are compounding (they are given in terms of percentages) whereas point rental prices increase incrementally. Furthermore, I do not see a strong connection between rack rates and point rental prices. Point rental prices are determined by supply and demand for points. If point rental prices were tied to rack rates, the enormous gap between the two would not exist, in my opinion.

 

[bighoo93]

I can provide you with one potential reason why the situation you describe might occur. Maintenance fee increases are compounding (they are given in terms of percentages) whereas point rental prices increase incrementally.

I think maintenance fees increase primarily due to inflation, right? The same factor impacts cash room and point rentals. There are other elements involved, but for the most part over time I wouldn't expect their rise to be vastly different. I could definitely see more fluctuation in point rental prices, due to economic factors and short-term trends, while inflation will drive a more regular increase for MFs. But over the long run, the short-term effects probably are just that, and the prices will go up similarly.

 

[DougEMG]

I think maintenance fees increase primarily due to inflation, right? The same factor impacts cash room and point rentals. There are other elements involved, but for the most part over time I wouldn't expect their rise to be vastly different. I could definitely see more fluctuation in point rental prices, due to economic factors and short-term trends, while inflation will drive a more regular increase for MFs. But over the long run, the short-term effects probably are just that, and the prices will go up similarly.

I agree with you in that there is a correlation between MF and rental rates and that they will not decouple in the long run.

MF though will go up annually by a percent while rental rates will follow behind, staying steady for a number of years and then jumping up all at once, always playing catch up.

Now if Disney ever gets out of selling DVC units and renting hotel rooms, then I would expect MF and rental rates to totally decouple.

 

[ELMC]

I think maintenance fees increase primarily due to inflation, right? The same factor impacts cash room and point rentals. There are other elements involved, but for the most part over time I wouldn't expect their rise to be vastly different. I could definitely see more fluctuation in point rental prices, due to economic factors and short-term trends, while inflation will drive a more regular increase for MFs. But over the long run, the short-term effects probably are just that, and the prices will go up similarly.

I agree with you in that there is a correlation between MF and rental rates and that they will not decouple in the long run.

MF though will go up annually by a percent while rental rates will follow behind, staying steady for a number of years and then jumping up all at once, always playing catch up.

Now if Disney ever gets out of selling DVC units and renting hotel rooms, then I would expect MF and rental rates to totally decouple.

I wish I shared your optimism with regards to the ability to rent points for a profit. But DVC is the only timeshare system I know of that provides this much of an opportunity for profits above and beyond annual maintenance fees. Yes, I understand that DVC is unique, but it's a timeshare nonetheless. We are entering into a new period of DVC, one with outrageous direct prices that were most likely not foreseen. I wonder what else it is we're not seeing.

 

[Dean]

I think maintenance fees increase primarily due to inflation, right? The same factor impacts cash room and point rentals. There are other elements involved, but for the most part over time I wouldn't expect their rise to be vastly different. I could definitely see more fluctuation in point rental prices, due to economic factors and short-term trends, while inflation will drive a more regular increase for MFs. But over the long run, the short-term effects probably are just that, and the prices will go up similarly.

Historically rental prices haven't tracked inflation or rooms rates very much. We've gone from around $10 a point in the mid to late 90's to $13 today (with some ups and downs). As for fees tracking inflation, they SHOULD track inflation related to the area and type of services and products used but not necessarily the overall reported inflation rate. However, that assumes good choices and projections by the management team, no unexpected or unplanned issues,no major changes like upgrades and no hanky-panky on the side of DVCMC or any executives. Timeshare and even Disney history doesn't suggest that perfect world is likely to last. It goes back to something I posted previously on another thread (I think), that when one looks at DVC there really is almost no chance of an unexpected upside, all risks and variables are almost certain to go against you if your assumptions go sideways.

 

[crisi]

When the economy went South in 2009, there were more rental points on the market than people who wanted to go to Disney and rent points. Disney had good deals, and when Disney has good deals (like free dining), rental points don't look as attractive. There was a period where there were no guarantees you'd be able to rent your points at all, although most people did.

If gas prices were to increase significantly, like they did in 2007 and 2008, we see less vacationing. Airfare gets expensive, driving gets expensive, and people have their daily budget hit by gas prices. That would affect rentals. In 2007 and 2008 people were frequently renting their points for less than the $10 going rate at that time.

Disney themselves also has a lot of power. People renting points are their competition, and if they choose, they could throw a monkey wrench into our ability to "sell" our product. For instance - no Magical Express unless accompanied by a member. Renters are not allowed to put in room requests and get the "worst" rooms in the buildings. No ability to buy a dining plan without the member present. They've already come down harder on renters getting member discounts.

 

[DougEMG]

I wish I shared your optimism with regards to the ability to rent points for a profit. But DVC is the only timeshare system I know of that provides this much of an opportunity for profits above and beyond annual maintenance fees. Yes, I understand that DVC is unique, but it's a timeshare nonetheless. We are entering into a new period of DVC, one with outrageous direct prices that were most likely not foreseen. I wonder what else it is we're not seeing.

While DVC is a timeshare, it has a very large moat called WDW that makes it different from all other timeshares out there. As long as people want to stay on site at WDW then DVC or a Disney hotel is the only option. So there is a limited supply of onsite accomodations and a lot of demand, as long as that doesn't change I don't think the value of owning DVC will change.

 

[Galun]

Historically rental prices haven't tracked inflation or rooms rates very much. We've gone from around $10 a point in the mid to late 90's to $13 today (with some ups and downs). As for fees tracking inflation, they SHOULD track inflation related to the area and type of services and products used but not necessarily the overall reported inflation rate. However, that assumes good choices and projections by the management team, no unexpected or unplanned issues,no major changes like upgrades and no hanky-panky on the side of DVCMC or any executives. Timeshare and even Disney history doesn't suggest that perfect world is likely to last. It goes back to something I posted previously on another thread (I think), that when one looks at DVC there really is almost no chance of an unexpected upside, all risks and variables are almost certain to go against you if your assumptions go sideways.

I don't think rental prices will track inflation smoothly in the short run. Rental prices should be tied to the economic cycle similar to hotel rates. When occupancy is low (like during the recession), the rates will collapse. When occupancy is high, rates will firm up. When these ups and downs are normalized over the long run, the rental rates should track hotel rate increases.

MF should track inflation of wages... I thought I read somewhere that 2/3 of MF are used to pay direct wages at the resorts.

I would argue that Disney raising direct prices and thus firming up the resale market over the past couple months is an unexpected upside. But I do agree with you that the current implied rate of return in the mid to high teens is probably the best case assumption.

 

[DougEMG]

When the economy went South in 2009, there were more rental points on the market than people who wanted to go to Disney and rent points. Disney had good deals, and when Disney has good deals (like free dining), rental points don't look as attractive. There was a period where there were no guarantees you'd be able to rent your points at all, although most people did.

If gas prices were to increase significantly, like they did in 2007 and 2008, we see less vacationing. Airfare gets expensive, driving gets expensive, and people have their daily budget hit by gas prices. That would affect rentals. In 2007 and 2008 people were frequently renting their points for less than the $10 going rate at that time.

Disney themselves also has a lot of power. People renting points are their competition, and if they choose, they could throw a monkey wrench into our ability to "sell" our product. For instance - no Magical Express unless accompanied by a member. Renters are not allowed to put in room requests and get the "worst" rooms in the buildings. No ability to buy a dining plan without the member present. They've already come down harder on renters getting member discounts.

Definitely, the overall state of the economy is going to effect the demand and supply of rental points and a ceiling is always going to be set by what Disney is renting their rooms out at. Rental rates were at $10 for a long time because they started at a high rate compared to MF and then the recession hit and the supply of rental points increased while the demand decreased, so renters had no ability to increase the rental rates. But look what is happening now that the recession is over, rates have increased very quickly and are now $11-$14 per point. For high demand times and locations the norm is $13/point.


Given that Magical Express is paid for by our dues, I'm fairly sure that they couldn't do that. Removing the ability to purchase the DP is something they could do, given it is a big money maker for them, why would they.

If Disney were really that concerned with the rental market and had the power to do something about it, don't you think they would have done something during the last recession when their hotel accupancy rates dropped.