I know I should buy where I want to stay, but.....

[Brian Noble]

Let's assume the two options are a) dvc or b) rack rate. If you are too cautious in your assumptions, your math will tell you to go rack rate. When everything is said and done, rack rate may have costed you an extra 40 to 50k over a lifetime.

I think it's almost never the case that DVC loses to rack* given any set of reasonable expectations--even some pretty pessimistic ones. But, rack is also probably the wrong comparison. A better comparison might be rack with the prevailing discounts, or possibly even renting from an owner.

(I vaguely recall @CastAStone pointing out that VGC might actually be cheaper at rack, but don't quote me.)

There's another risk factor that I think people undervalue: the risk that their vacation preferences or abilities change. I've written about this before, but looking back over my past 20 years at how things unfolded vs. what I thought would happen, @crisi's 10-year horizon is probably longer than I'd be comfortable with. I'm a lot more comfortable at 5-7, and even 7 is pushing it.

 

[CanadaDisney05]

Yep. But I don't need to participate by giving them any sort of lifeline - like encouraging them to consider salvage value.

Right. But if they don't factor it in, which causes your calculations to show that rack rate is better, pay rack rate, they may cripple their finances much more. Basic example.....

Rack rate = $300/nt
90 points = 7 nights
Cost per point = $160
Annual dues = 7.50/pt.
Salvage value = 65% of purchase price after 10 years.

Rack rate = 300 x 7 x 10 = $21,000

DVC = (160 x 90) + (90 x 7.50 x 10) - ((160 x 90) x 0.65) = $11,790.

By being too cautious, you've now spent $9k more over 10 years. Which is a lot considering your only wagering 21k

 

[CarolMN]

I suggest people don't crunch numbers because as an accountant, I know you can make them come out the way you want - especially with two tricks - your TVM assumption and your salvage value assumption. And that isn't helpful. I've watched a LOT of number crunching on this board with some INSANE assumptions over the year - including salvage or resale value - often just done plain old wrong - in order to make a purchase sensible that isn't remotely sensible. I've watched people with real skill with numbers figure out the numbers game - doing an admirable job - and watched it be misinterpreted by people who don't understand time value of money - who frankly seem to be "but I have checks left!" financiers. I believe its a binary thing based on two yes no questions - can you afford to spend $$$$ to buy DVC, knowing tomorrow it might be bombed and after a few years you might get an insurance payout? Yes. Does it fit your needs? Yes? Buy it. If you can't afford to lose the dollars - and I mean lose every penny, don't buy it. If it doesn't fit your needs, don't buy it. Binary. And because there is no "I can just afford it" (if you are there then no, you can't), you don't need the numbers - you know if there are extra $$$$$ sitting in the stock market that you can pull out for DVC and if the dues bill will be "oh, time to pay that."

Maybe they will have resale value, maybe they won't - we are in the middle of the old Chinese curse - we live in interesting times. The one thing I would state is that if your partner has their heart set on BCV and you talk them into Riviera for the extra years, any value there when you sell it may not be worth the years of "gee, I really wish I wouldn't have let you talk me into this." "I'd really like to be at BCV right now" "Wouldn't this be a great time for our kids to be at Storm Along Bay" or the worse "you never listened to me, you always discounted my feelings" - divorce is much more expensive than a BWV contract. So is what some people here have done - bought the cheaper contract because "it won't make that much difference" and then pay the commission and closing cost to sell that one and buy where their heart was in the first place. I have learned over my years that spending more to get what you want if you are going to have to live with it - when the dollars aren't critical - is a much better idea than making a financial decision and spending a decade saying "the other couch was really much more comfortable."

Now, if you don't care where you end up, then you can think about getting the most bang for your buck.

The other thing to realize is that a lot of the current owners who are saying "I will be 80 when my contract expires, I don't care" have owned since before the end dates started getting pushed - back when all the contracts ended in 2042. That's the case for me. I will be 80 and don't care. But I also had no choice in contract end date when I bought. I will have gotten 40 years of value out of DVC (or have sold it for SOMETHING before then). If I do play a numbers game, we've gotten a ton of room value out of our DVC purchase and more than made up the dues and purchase price - even with TMV over rack rate. If I'm honest with the numbers game - we would have never taken guests with DVC and would have taken far fewer trips, staying in moderate studios rather than two bedroom units. We got value - we didn't save any money.

I agree with all of this, but I also know that I'm in the (small) minority of DISboarders on at least some of it.

Count me in with you. I agree 100% (and spent the latter part of my pre-retirement years working in Financial Services). Sadly, too many buy that really shouldn't be buying at all. It's often an expensive lesson.

For those who can afford this luxury purchase, I strongly believe that any savings buying a second or third choice because it's "the best deal" are soon forgotten if they or their spouse spends vacation time wishing to be somewhere else.

 

[CanadaDisney05]

I think it's almost never the case that DVC loses to rack* given any set of reasonable expectations--even some pretty pessimistic ones. But, rack is also probably the wrong comparison. A better comparison might be rack with the prevailing discounts, or possibly even renting from an owner.

My point is that their is risk on both sides of the equation. The risk is not just the cost of DVC. The risk is also the cost of not buying DVC. See my post above.

(I vaguely recall @CastAStone pointing out that VGC might actually be cheaper at rack, but don't quote me.)

There's another risk factor that I think people undervalue: the risk that their vacation preferences or abilities change. I've written about this before, but looking back over my past 20 years at how things unfolded vs. what I thought would happen, @crisi's 10-year horizon is probably longer than I'd be comfortable with. I'm a lot more comfortable at 5-7, and even 7 is pushing it.

I agree. Their is a lot more to the discussion than just numbers. That's the whole qualitative aspect.

 

[Brian Noble]

Rack rate = $300/nt
[...]
By being too cautious, you've now spent $9k more over 10 years. Which is a lot considering your only wagering 21k

This is a nice thought, but entirely pointless. There is no DVC resort anywhere in WDW with a nightly all-in price of $300/night. A Standard studio at SSR is about $438/night rack all in for a week in January, and also 90 points. Even if you assume zero at 10 years, owning ($21K) beats rack ($30K) and it is not close. If you assume you get a 25% discount on that room each and every year (and that's plausible), owning still comes out ahead by a grand or two, even if the deed is worthless after ten years.

Where it gets tricky is when you consider renting from an owner as your comparison point. You can rent SSR for $17ish right now, give or take. You'd need the residual value to be 40% or higher ($64) to make owning for 10 years pay in that scenario. Is that likely? Probably. The bottom of the Great Recession was not too much lower than that. But, if that's the make-or-break line for buying, maybe you're working too hard to justify it.

(For the curious, it looks like the zero-residual horizon on owning vs. renting from an owner is 16 years, give or take.)

 

[Brian Noble]

For grins, I went back and did the same thing for a 1BR figuring it would be much worse to own in that scenario. It's a little bit worse, but not by much.

 

[crisi]

My point is that their is risk on both sides of the equation. The risk is not just the cost of DVC. The risk is also the cost of not buying DVC. See my post above.

(I vaguely recall @CastAStone pointing out that VGC might actually be cheaper at rack, but don't quote me.)



I agree. Their is a lot more to the discussion than just numbers. That's the whole qualitative aspect.

I disagree. The risk of not buying DVC is that if you can't afford Disney, you don't go. You are potentially missing out on a Disney vacation - or one where you stay on property. That, honestly, isn't a comparable risk to selling DVC at a loss when that $5k could be used to pay your mortgage when facing job loss. No one has ever ended up homeless because they couldn't afford to vacation at Disney. People DID end up homeless because they bought DVC in 2008 and sold it at half their loan value in 2009.

 

[CanadaDisney05]

This is a nice thought, but entirely pointless. There is no DVC resort anywhere in WDW with a nightly all-in price of $300/night. A Standard studio at SSR is about $438/night rack all in for a week in January, and also 90 points. Even if you assume zero at 10 years, owning ($21K) beats rack ($30K) and it is not close. If you assume you get a 25% discount on that room each and every year (and that's plausible), owning still comes out ahead by a grand or two, even if the deed is worthless after ten years.

Where it gets tricky is when you consider renting from an owner as your comparison point. You can rent SSR for $17ish right now, give or take. You'd need the residual value to be 40% or higher ($64) to make owning for 10 years pay in that scenario. Is that likely? Probably. The bottom of the Great Recession was not too much lower than that. But, if that's the make-or-break line for buying, maybe you're working too hard to justify it.

(For the curious, it looks like the zero-residual horizon on owning vs. renting from an owner is 16 years, give or take.)

This was a completely made up scenario. If you want to change the scenario to sell after 5 years, you can do that too. Don't get lost in the weeds in the details.

I disagree. The risk of not buying DVC is that if you can't afford Disney, you don't go. You are potentially missing out on a Disney vacation - or one where you stay on property. That, honestly, isn't a comparable risk to selling DVC at a loss when that $5k could be used to pay your mortgage when facing job loss. No one has ever ended up homeless because they couldn't afford to vacation at Disney. People DID end up homeless because they bought DVC in 2008 and sold it at half their loan value in 2009.

QUOTE="CanadaDisney05, post: 63519909, member: 597086"]
That's why I think you need to do both calculations. Step 1 is determine if the worst case scenario came true, would it cripple you financially. Step 2 is make reasonable assumptions in your most likely scenario.
[/QUOTE]

You keep ignoring this. Literally the first step I suggested is to do a worst case scenario analysis and see if it's something you can manage. If you can't full stop. It doesn't matter what the most likely scenario tells you.

This process doesn't just apply to DVC purchases. It should apply to any major financial decision. If you are too risk averse in your assumptions, you run the risk of making the wrong financial decisions over and over. You would never buy a home, never invest your retirement savings, over insure yourself, etc. Sometimes in life, you have to take risk to get ahead. But you should also manage that risk. If the negative outcome would ruin you, the risk is not worth taking.

 

[Chuck S]

It sounds like you enjoy staying at many different onsite resorts. I would buy any onsite resort over an offsite resort to assure a reservation at the 11 month mark onsite. 7 month reservations, depending upon season, will be getting much more difficult...especially if you want a studio. With the backlog of unused points from COVID, it will be rough for the next few years, with a lot of people banking as many points as they can.

 

[crisi]

You keep ignoring this. Literally the first step I suggested is to do a worst case scenario analysis and see if it's something you can manage. If you can't full stop. It doesn't matter what the most likely scenario tells you.

No, I know you said that. But you don't seem to take yourself seriously with that statement, since you then equate the risk of buying DVC when you can't afford it with the risk of not buying DVC and losing some money. Because your concern is being too cautious.

 

[CanadaDisney05]

No, I know you said that. But you don't seem to take yourself seriously with that statement, since you then equate the risk of buying DVC when you can't afford it with the risk of not buying DVC and losing some money. Because your concern is being too cautious.

Again, that is not what I said at all. I never suggested someone should buy DVC if they cannot afford it. I've said multiple times in my responses that if the worst case scenario plays out, and it would cripple your finances, do not buy.

But that is not the same thing as suggesting you should make a decision using unrealistic, conservative assumptions. If you are always using unrealistic, conservative assumptions in your decision making, you will always fall behind. In life, we make plenty of decisions. Even if you lose some using this philosophy, your wins will far offset those losses. You will end up in the black.

If someone is too afraid to drop a down payment on a house and instead rents their whole life. They then take the cash flow savings and put it into a bank account rather than an investment. They then over spend on insurances and warranties. They then won't jump jobs to the higher paying job with slightly less job security. Sure, they will never be in a terrible spot. But they will also never be in a good spot.

That also doesn't mean that the persons approach should be to buy a 2 million dollar home, invest their retirement in crypto, save cash by not buying life, disability, and property insurance, and jump jobs every 6 months chasing the largest paycheque. Their is a middle ground.

But that is my personal approach. Maybe we'll have to agree to disagree

 

[chainkid]

I'm not a math genius but I bought in 1999 around 300 points at $65.00 per point then added a few more contracts in the early years for a total of 800 points all but a few at BWV . I have never lost a point due to bad planning or unforeseen circumstances luckily. Dues have gone up considerably over the 21 years so even having bought at a very low rate compared to today, it costs alot to use your points and pay dues on them month after month. I can't say I have saved any money over not owning at Disney because I have taken over 40 vacations at WDW in those 21 years and invited all my family and friends to join me during that time. It is a very expensive hobby to say the least. I could sell my points now quickly and get almost double my original investment so I don't lose sleep over a crisis hitting me. I can honestly say it was by far the most satisfying investment that I own.. Investment in building close family ties by providing a vacation for lots of people who might never had had the opportunity to experience Disney the way I do. I've stayed at every resort once or twice and been to Aulani a few times but my true love is Boardwalk Area so buy where you feel at home.

My contract ends in 2042 when I am 92 god willing with no buyers remorse . My family is richer in ways that cannot be measured . Best decision i have ever made other than my spouse who will celebrate 50 years of marriage this year on our next disney vacation. Fitting our 50th is also Disney's 50th celebration.

 

[lovethesun12]

Where it gets tricky is when you consider renting from an owner as your comparison point. You can rent SSR for $17ish right now, give or take. You'd need the residual value to be 40% or higher ($64) to make owning for 10 years pay in that scenario. Is that likely? Probably. The bottom of the Great Recession was not too much lower than that. But, if that's the make-or-break line for buying, maybe you're working too hard to justify it.

Can't forget the risk of renting though. Many people lost a ton of money during covid while owners just had to reschedule their vacation.

 

[LYSE]

If the shtf and I can't afford my Maintenance fees for what ever reason I am assuming the rental rates even in a poor market will cover them, same goes for if we decide to skip disney as a vacation, renting out 625 points can fund a pretty nice vacation somewhere else.

 

[sethschroeder]

I disagree. The risk of not buying DVC is that if you can't afford Disney, you don't go. You are potentially missing out on a Disney vacation - or one where you stay on property. That, honestly, isn't a comparable risk to selling DVC at a loss when that $5k could be used to pay your mortgage when facing job loss. No one has ever ended up homeless because they couldn't afford to vacation at Disney. People DID end up homeless because they bought DVC in 2008 and sold it at half their loan value in 2009.

Basically you have skipped the "red flags" by getting a loan on DVC, by not having emergency funds for their household expenses for 6-12 months or more, and by stretching finances. If people want to do it they can but that is not what many who do more advanced number crunching are going to account for since they would have already decided not to buy.

You are in a completely different decision tree then those using funds that are marked for vacations/entertainment.

 

[RoseGold]

Plenty of people get DVC foreclosed, even in markets where values were going up.

I believe stretching family finances for any luxury vacation purchase is reckless. Historically, buying resale with cash isn't much risk and is a reversible decision. Financing costs and interest rates can be obscene, even predatory and flip all of the math.

 

[Brian Noble]

If the shtf and I can't afford my Maintenance fees for what ever reason I am assuming the rental rates even in a poor market will cover them

Probably true if it hits the fan *for you*. But, if it hits the fan *in general* maybe not. Again, those of us who were around the DVC community in the Great Recession remember what that looked like.

Can't forget the risk of renting though. Many people lost a ton of money during covid while owners just had to reschedule their vacation.

True, if the world stops spinning due to another global pandemic or similar black swan event, then things get squirrely. But, which side of the risk ledger is more likely, a recession (which favors the renter) or a pandemic (which favors the owner unless the broker's force majure clause shifts the risk to the owner---and I think some of them have.)

 

[LYSE]

Probably true if it hits the fan *for you*. But, if it hits the fan *in general* maybe not. Again, those of us who were around the DVC community in the Great Recession remember what that looked like.

In the Recession what kind of disparity between MF and rental rates were there? I wasn't wasn't owner back then so I am curious.

Personally, I've also been fortunate enough to always work in recession proof or resistant industry/companies and historically had my best years in others worst years..so while I don't completely count on this I do give it some weight.

 

[Brian Noble]

Rates were still (I think) generally near or above dues, but I don't think I would count on it if push came to shove.

We also work in counter-cyclical industries, so I get what you're saying. But, I'd still want to know that if I had to black-hole my Dues for a few years that wouldn't be make-or-break.

 

[crisi]

Basically you have skipped the "red flags" by getting a loan on DVC, by not having emergency funds for their household expenses for 6-12 months or more, and by stretching finances. If people want to do it they can but that is not what many who do more advanced number crunching are going to account for since they would have already decided not to buy.

You are in a completely different decision tree then those using funds that are marked for vacations/entertainment.

Yep, the problem being that the people who are financially savvy don't need the Disboards to tell them how to make intelligent financial decisions. We, who understand it, like to talk about it. Its the people who AREN'T and read any thread going into finances and come out with the impression they can't lose (usually its an emotional decision, and all the common sense talk in the world won't impact it anyway....but I sleep better.)