looking for some input on our first purchase

[Dean]

Let me be the Devil's Advocate ....

Go ahead and buy 100 points at BWV or VWL. You will NOT be wrong financally..... and use your HELOC !!!

My reasons:
1. When you do stay on property and use points you save a boatload of money over cash rooms. I stayed at AKV Jambo Savannah View this past March with my family in 2 studios for 5 days, using 2 years worth of BWV points (100 point contract) + some extra one-time use points from Disney.

My savings over cash cost: $4200.
My resale contract cost with closing - 2011: $6450.
If I rented those points from David I would have spent $1223 more ($2996).
My cost: 2 years membership fees + onetime use point cost + 2 years straight line depreciation (to make it simple): $ 1773.

Two Disney trips and I have my money back in spades over cash/credit card.

2. RENTING. I have found someone to rent the next 2 years of my BWV points. After deducting membership fees I will get a 9.3% return per year:
($600 "profit" per year/ $6450 cost) * 100%. Since this is my first rental, I charged a lower rate. Next time I plan on making over 10% each and every year. You could think of DVC as an annuity with guaranteed payout over the life of the contract (28 or 27 years) at 10% and you can "cash out" at any point with some principal loss - Where else can you get this???

As they say: "The Devil is in the Details". Why would people buy DVC, then buy again and again and again (the disease ADDONITIS) if it was a bad deal financially?

I have recently bought an SSR 160 point contract with 40 years of points on it and very low membership fees.

Go with the HELOC !!!

DVC is a great system and there are worse choices than financing a small DVC contract, but let me address some of your points. Using the DVC rack rate is not relevant unless you would have paid that without owning, even then you'd likely be looking at a min of 10-20% discount. I would also take issue with characterizing DVC maint fees as cheap, they're generally about 30% more than a comparable off property timeshare that's otherwise equivalent. As for the idea that people willingly throw their money at DVC making it a good choice, not in my eyes. The real comparison for DVC are 3 IMO. One to off property (renting, owning or exchanging), to renting points/stays from another member and to a discounted rate for the resort type of choice (value, moderate or deluxe).

As far as the financial comparison, to me there are several flaws in your comparison. Using the full length of the contract (taking the amount paid and dividing by the RTU) is far too long a time. I use 10 years as a return of principle. Thus in your comparison I'd take the amount paid, divide by 10 years, add the 2 years of dues (assuming you only used 2 yrs of points) AND include the lost earnings for the time value of money. I would then compare to renting privately, more like $11-13 a point than 15 and to a discounted rack rate only if I were going to pay cash for a DVC villa otherwise. We've also taken on a long term commitment that has significant risk. The numbers should still work out but the other variables are that of the risk involved as well as those that borrow for DVC will likely be in the habit of borrowing for many other things as well. Thus it's more of a symptom of behavior for many than a simple mathematical formula just for buying DVC. YMMV.

 

[Kidanifan08]

You plan to not use your points, but rent them instead of going? Why bother buying them???

This was my thought reading that post. You have used up 4 years of points to stay in a studio for 5 nights --- fun. Personally, I bought into DVC to use my DVC. Let the others buy their own DVC. OP, although renting is an option for recovering some of your expenses, it does not let you use your DVC and it can sometimes be a pain, in addition to being a liability risk. I help a friend who owns DVC rent her points, and we only rent to people we know well. It is still a lot of work, but I couldn't bear watching all of those valuable points go unused.

I hear what some of you are saying about the financing. Fact is, we rarely will have $7K plus in one lump sum. Not until we retire. We recently built a house so any chunks of money like that go to home improvements, college funds, etc. We took out a HELOC just to have. I've done the math and we no doubt could afford the payments on it, in addition to the dues. Should I really have qualms about going this route? I figure it beats waiting 3+ years to save that cash, and also beats the borderline usurious interest rates timeshare financing companies can charge. What did you all do for that initial cost?

At the current resale prices, $7k is probably not going to get you 100 pts at BWV. With closing costs and paying for current year dues, your looking at something more in the $8500-9500 range. Looking at the ROFR thread, even medium sized contracts are selling in the $80's. One year of dues is $584 and closing costs are $400-450. Then you have to add in all of the costs of a Disney vacation -- airfare, tickets, food, souvenirs . . . it get's expensive. Of course, nobody needs to tell you that -- you in your early 30's with over 5,000 posts on a Disney fan message board.

As others have recommended, you may want to rent DVC every other year until the kids get here to see if DVC is even for you. At least consider renting a studio once for a 4-7 day trip and take some time to visit the DVC properties. You may find that one of the other resorts appeals to you for some reason. Like you, we love the Boardwalk area, but our home is AKV, and despite all of the negative threads about the long hallways and remote location and lack of a QS at Kidani, we still look forward to our AKV stays more than any other location. It just feels right -- to us.

I must say, I am impressed that you are already putting money into a college fund before the kids are here -- few are that disciplined. If you are already doing that, you certainly could come up with a savings plan to sock away the $9-10,000 you need to buy in within the next 2-3 years and not have to worry about leveraging your home. Remember, DVC is not going anywhere. Good luck researching and making a decision.

 

[DVC Dude]

I don't intend to be harsh but if one can't get together $7K at one time, how can one do a trip to one of the most expensive places on earth routinely. I personally wouldn't do it unless I could pay cash and had no other consumer debt plus a good emergency fund.

I 100% agree with this assessment

Let me be the Devil's Advocate ....

Go ahead and buy 100 points at BWV or VWL. You will NOT be wrong financally..... and use your HELOC !!!

My reasons:
1. When you do stay on property and use points you save a boatload of money over cash rooms. I stayed at AKV Jambo Savannah View this past March with my family in 2 studios for 5 days, using 2 years worth of BWV points (100 point contract) + some extra one-time use points from Disney.

My savings over cash cost: $4200.
My resale contract cost with closing - 2011: $6450.
If I rented those points from David I would have spent $1223 more ($2996).
My cost: 2 years membership fees + onetime use point cost + 2 years straight line depreciation (to make it simple): $ 1773.

Two Disney trips and I have my money back in spades over cash/credit card.

Go with the HELOC !!!

While I agree with most of what you are saying, you are forgetting about the opportunity costs of the purchase and the fact that this is a RTU asset and will eventually be worth $0 so there is a depreciation cost as well.

The glaring oversight to me is that your savings vs renting points is not as great as you state and the comparison to cash rate is based on rack rates and often times you can stay with significant discounts off the rack rate. Your examples seem to take extreme numbers on both sides of the equation and while that may indeed be true, it is not an accurate outlook for the average DVC member.

However, I agree that your purchases will definitely SAVE you money vs renting from David or paying Disney cash rates and that is the important thing, I just think the savings is much LESS than what you calculate.

***************

In My Humble Opinion, the SIMPLEST way to evaluate a DVC purchase and compare that to renting is to use $ annual dues + $2 or $3 depreciation costs + interest (on loan) or interest of lost opportunity.

Thus, an example for a 100 point SSR resale contract could be:
$5 annual dues + $2 depreciation + $2 interest/lost opportunity = $9pp and this is typical for a resale purchase

An example for a 100 point BWV resale contract could be:
$6 annual dues + $2 depreciation + $2 interest/lost opportunity = $10pp and this is typical for a resale purchase

If you bought VGF from Disney the number would be higher:
$5.41 + $3 depreciation + $7.59 (assumes a 5% rate) = $16pp

If you can rent for $11pp then the true SAVINGS is only $1-2pp from buying resale and you are actually losing money buying VGF.

Your yearly savings on 100 point BWV resale vs renting is only:
$100 based on a $11pp rental market
$200 based on a $12pp rental market
$300 based on a $13pp rental market
$400 based on a $13pp rental market

Thus, it will take a LONG time to break even buying over renting.

 

[DVC Dude]

2. RENTING. I have found someone to rent the next 2 years of my BWV points. After deducting membership fees I will get a 9.3% return per year:
($600 "profit" per year/ $6450 cost) * 100%. Since this is my first rental, I charged a lower rate. Next time I plan on making over 10% each and every year. You could think of DVC as an annuity with guaranteed payout over the life of the contract (28 or 27 years) at 10% and you can "cash out" at any point with some principal loss - Where else can you get this???

I think you went off the mathematics deep end with your pie in the sky calculations, but it is true, you are making money renting points.

You are assuming a $6 annual dues only and $12pp rental rate.

You are forgetting the $depreciation and $lost opportunity costs and those will have a significant impact on your ROI.

You are assuming that you can get $12 when the range has been $10-11 for the past 10 years and you are assuming that there will always be free websites like this to rent points and that there will always be people wanting to rent. Yes, those are correct assumptions for today and the foreseeable future, but it is not a 100% guarantee.

Finally, you got LUCKY buying BWV for $64pp when the current prices are much higher today.

Here are my recalculated numbers for your example:

100 point BWV contract bought for $6,450 could be:
$6 annual dues + $2 depreciation (BWV expires in 30 years) + $2 interest/lost opportunity (assume 3%) = $10pp

$12 - $10 = $2pp and @ 100 points your PROFIT is only $200 per year and that profit divided by your cost = 3% ROI.....not 10%

Even if you want to assume only Depreciation OR Lost Opportunity cost and not both here are the calculations:

$6 annual dues + $2 depreciation/interest/lost opportunity = $8pp

$12 - $8 = $4pp and @ 100 points your PROFIT is only $400 per year and that profit divided by your cost = 6% ROI.....not 10%

**************************

Thus, your real ROI is either 3% or 6% and is DEFINITELY NOT 10%

 

[Dean]

I think you went off the mathematics deep end with your pie in the sky calculations, but it is true, you are making money renting points.

You are assuming a $6 annual dues only and $12pp rental rate.

You are forgetting the $depreciation and $lost opportunity costs and those will have a significant impact on your ROI.

Don't forget taxes at the marginal rate on the amount over dues and direct expenses.

 

[DVC Dude]

Don't forget taxes at the marginal rate on the amount over dues and direct expenses.

I agree, but that would affect the net price with the OP calculations and mine and alternative investments like stocks equally (all except tax exempt products) and that of course could lower the return another 25% off the Net revenue.

So the 6% ROI in my previous calculations would be lowered to 4.65% if he is in the 25% tax bracket.

The 3% ROI in my previous calculations would be lowered to 2.32% if he is in the 25% tax bracket.

So, it is clear that even with the OP exact BWV bargain purchase price, it is no where near the 10% ROI he stated he was getting.

 

[boxer]

I gotta ask.......HOW rich are some of the posters on this thread, whereby they think $7k can just be whipped-up in a couple months? LOL. I knew we were buying into an 'exclusive' DVC Disney club, but my god, some of you must have money just laying around at home.

To the OP--we are a younger family, and I wish that we would have bought in sooner. We have taken around 11 trips since we first toured the DVC 5-6 years ago, and we often think what we 'could' have bought in for, rather than the $150/ppt we just paid. Financing a $7k loan is not the end of the world--I know friends that financed $11k on a damn Razor ATV. And there are even more on this site alone that put their Disney vacation on a Disney Visa Card---so you could be doing alot worse than financing $7k for the DVC.

You're in banking, so you should know full well you can skew the numbers anyway you want to make this look good, or bad (just like the posts above). The bottom line is do YOU want this purchase, and do YOU think your family will enjoy it. That is how we decided to (over)pay for the VGF a few weeks ago.

 

[DVC Dude]

I gotta ask.......HOW rich are some of the posters on this thread, whereby they think $7k can just be whipped-up in a couple months? LOL. I knew we were buying into an 'exclusive' DVC Disney club, but my god, some of you must have money just laying around at home.

To the OP--we are a younger family, and I wish that we would have bought in sooner. We have taken around 11 trips since we first toured the DVC 5-6 years ago, and we often think what we 'could' have bought in for, rather than the $150/ppt we just paid. Financing a $7k loan is not the end of the world--I know friends that financed $11k on a damn Razor ATV. And there are even more on this site alone that put their Disney vacation on a Disney Visa Card---so you could be doing alot worse than financing $7k for the DVC.

You're in banking, so you should know full well you can skew the numbers anyway you want to make this look good, or bad (just like the posts above). The bottom line is do YOU want this purchase, and do YOU think your family will enjoy it. That is how we decided to (over)pay for the VGF a few weeks ago.

I actually don't think you OVERPAID for VGF. I think you paid the current market rate. Sure you could have saved 50% buy buying a resale SSR, but that is not the same as what you bought. You bought at the best and most expensive DVC to get a 11 month window of booking and you paid a fair price. In a few years, when some VGF resales begin to hit the market, perhaps the prices will be $120 or so, but if it is your intention to stay at VGF at the 11 month mark, then you did fine.

On the other hand, if you bought VGF for the intention of renting your points for a profit and you financed, then that is probably not a good use of money.

As far as the $7k comment. The thought is that if you have to finance a timeshare, then you really have to double think this use of money as there are ways to accomplish almost the same thing with spending less. Of course you can rent points forever and not buy, but owning does indeed have some significant advantages over renting.

But renting for MANY people is still cheaper than buying and that is especially true if you finance the purchase.

Also, the number crunchers here are not necessarily spinning anything, but it sure would be nice if the number crunchers would include all the data and not be selective to skew the results.

 

[boxer]

Those VGF points were bought for the sole purpose of us using them---and trying to use them all at the VGF! I love that place. And this is coming from someone who would never even venture there in the past because I thought it was too stuffy, lol. I, however, did not finance due to the 12% charge Disney was quoting (CAN'T believe people pay those rates!!).

To the OP--like I wrote previously, do what is best for your family. And if that means a small finance loan, then so be it. I WISH we would have done this years ago. I think of all the deluxe resorts I've paid for in the past 6 years, and the DVC would have been close to broke-even at this point.

 

[nkereina]

OP here. Thank you all again for the comments - more than I can respond to, but I appreciate them all. These are the kinds of things I need to mull over during my DVC due diligence process

I actually consulted my financial advisor on this topic today. Of course, he thinks timeshares are a frivolous purchase all together, but once I got him past that, he actually found that using my HELOC is the best option in our situation. He feels that any cash savings we have is cash that should be kept on hand (and we should continue adding to it), and make our payments on the HELOC while we're both healthy and working stable jobs. If we fall on hard times, we can use our cash savings to pay off the HELOC at that time if we need to. In other words, don't spend the cash until it's necessary. I guess its just another way to look at it.

Again, I appreciate the conversation. I'm glad everyone here has valid inputs unlike some of the posts on these other boards


ETA: Just went back and re-read some posts. To clarify for the couple above me, it's not that I CAN'T get $7K together instantaneously, its just why would I when I don't necessarily need to? I could and would for an emergency, and that's about it. Ironically, I work in Credit Risk evaluating mortgage interest rates so maybe I'm mixing work and home life But in all seriousness, everyone handles finances differently and the thought of a loan other than my mortgage doesn't scare me. FWIW, we have coughed up about $3K a year for Disney trips for the last few years, so maybe we'd even save money by doing DVC. Who knows!

 

[Dean]

I gotta ask.......HOW rich are some of the posters on this thread, whereby they think $7k can just be whipped-up in a couple months? LOL. I knew we were buying into an 'exclusive' DVC Disney club, but my god, some of you must have money just laying around at home.

To the OP--we are a younger family, and I wish that we would have bought in sooner. We have taken around 11 trips since we first toured the DVC 5-6 years ago, and we often think what we 'could' have bought in for, rather than the $150/ppt we just paid. Financing a $7k loan is not the end of the world--I know friends that financed $11k on a damn Razor ATV. And there are even more on this site alone that put their Disney vacation on a Disney Visa Card---so you could be doing alot worse than financing $7k for the DVC.

You're in banking, so you should know full well you can skew the numbers anyway you want to make this look good, or bad (just like the posts above). The bottom line is do YOU want this purchase, and do YOU think your family will enjoy it. That is how we decided to (over)pay for the VGF a few weeks ago.

No one said anything about going from not thinking about it to $7K in a couple of months. The reality is that Disney is expensive, even if staying cheaply off property. One simply needs to set a goal and do planning. It might mean missing a trip to make it happen. IMO financing DVC is no better or worse than financing an ATV.

Those VGF points were bought for the sole purpose of us using them---and trying to use them all at the VGF! I love that place. And this is coming from someone who would never even venture there in the past because I thought it was too stuffy, lol. I, however, did not finance due to the 12% charge Disney was quoting (CAN'T believe people pay those rates!!).

Exactly, but it's not just the rates. Putting one's house at risk for a timeshare is actually even worse IMO no matter the interest rate. Plus, as I noted before, it's not simply a decision of whether to finance a timeshare but 2 cars, appliances, the next cruise on a CC, etc, etc. Being able to "afford the payments" is not the same as being able to afford the purchase. Normal is broke, I want better for all people and I don't believe that one can finance themselves into security, quite the opposite. Delayed gratification is a good thing and for those that can't get it together with planning, either they couldn't afford it anyway or it wasn't important enough for them to work toward the goal.

 

[DougEMG]

As others have said, DVC is a luxury purchase for a pre-paid room. The only reason to ever purchase DVC is because you want to stay on site in a DVC room and you want to save money on paying for that room, cause you can get the exact same room paying cash to Disney, renting points from a points broker or renting from an individual without having to enter into any long term financial commitment that buying places on you.

As I'm risk averse by nature, we didn't buy till later in life when we had money burning a hole in our pockets that We could easily afford to waste on a frivolous purchase.

 

[bakerworld]

Part of the reason we bought DVC was because of the financing. If it hadn't saved us $$ with the financing we wouldn't have bought it.

I looked at it like purchasing a car and paid for it accordingly. We were 'loan free' so it was a good time for us to purchase. We've just purchased a small contract and when that's paid it will be time for a 'new' car. I know the car purchase mentality drives some people on this board over the edge but it's just meant to indicate loan length. The part to remember is the purchaser needs to decide a loan length comfort zone and stick to that as DVC just does 10 year loans. The purchaser who finances needs to be the self-directed and focused.

DH doesn't believe in handing over large quantities of cash - he does everything on time so the bank account increases.