Not drinking the cool aid on resale!!

[Dean]

I see a lot of discussion of the time value of money, which as someone with an economics background, I can appreciate. But another way to look at it is opportunity cost. While the time value of money may be a component of opportunity cost i.e. what could you earn with this money, or, the other way to look at is let’s assume you would spend it anyway, what could you do with this money.

This is more applicable to those who will be financing in some form or another, even self-financing. I plan on taking a 5 year loan out on my 401-K which I will pay myself back the interest at 5.25%. So my risk is twofold what could I buy with the income stream used to pay back that loan of about $300 a month, and what will I miss out on by removing my cash from a potentially higher interest earning vehicle.

I hate to admit this, but the majority of the 300 a month cost will be realized by lifestyle changes, i.e. being more frugal, no more, or minimal eating out, no more $50 bottles of scotch, no more HBO except when Game of Thrones is on . Now yes one could argue we could save that money and invest it, but the reality is we wouldn’t be willing to make all these cuts if we didn’t have the goal of DVC ownership.

The 2nd risk is the loss of potential gain. And while a lot of people note an assumed gain of 8% claiming it is conservative you can look at many 5 year periods in the past where the market (S&P 500) underperformed these. Especially if you look at Compound Annual Growth Rate vs the average rate of return of 5 year periods in the past 14 years. A problem with talking about average investment returns is that there is real ambiguity about what people mean by "average". For example, if you had an investment that went up 100% one year and then came down 50% the next, you certainly wouldn't say that you had an average return of 25% = (100% - 50%)/2, because your principal is back where it started: your real annualized gain is zero.
In this example, the 25% is the simple average, or "arithmetic mean". The zero percent that you really got is the "geometric mean", also called the "annualized return", or the "CAGR" for Compound Annual Growth Rate. Here is the CAGR for the past 14 years:
1/1/00 – 12/31/04 = -2.37%
1/1/01 – 12/31/05 = 0.45%
1/1/02 – 12/31/06 = 6.0%
1/1/03 – 12/31/07 = 12.78%
1/1/04 – 12/31/08 = -2.31%
1/1/05 – 12/31/09 = 0.41%
1/1/06 – 12/31/10 = 2.27%
1/1/07 – 12/31/11 = -0.27%
1/1/06 – 12/31/12 = 1.63%
1/1/06 – 12/31/10 = 2.27%
1/1/09 – 12/31/13 = 17.99%
And to sum up: 1/1/00 – 12/31/13 = 3.55%
If you want to play with the numbers, moneychimp.com/features/market_cagr. h t m
So I think the time value of money may be over weighted, unless you can pick the 2 out of 14 year where the CAGR significantly exceeded 5.25%.

And the item that is under weighted the time value of, well… time. If you have lots of disposable income then yes you can break it down to a simple cost analysis. But for many people I’d suspect you will now find a way to vacation more and spend more time with the loved ones. I know I haven’t been to Disney in many years, primarily because I want to stay in the deluxe resorts. With young kids ages 2 and 5, if I wait until I can “afford it” they’ll almost be teenagers. By the same token, if I waited to have children until I could “afford them” well, I’d probably have 1 or 0 children.

The point being if by buying resale you are able to lock yourself into an affordable annual or bi-annual vacation, when you would not be able to afford buying direct or paying for the hotel, it seems like a steal to me and my family, and I can’t see the value in buying direct. It’s not about what the cost is today new vs the cost resale 5 years from now; it’s about the cost to buy today and what that will get me today and in the future vs what buying direct will get me today and in the future. Today resale will make my limited resources go a lot farther.

A few points. Borrowing from a 401K adds additional risk if you leave or lose your job of having to potentially having to pay both the tax rate and the 10% penalty if under 59.5 I believe. The second is that one isn't talking taking the money out at 5 years but rather leaving it in for at least 5 yrs, basically drawing a distinction between short term money and long term money, we're really talking of leaving it in investment 20, 30, 40 yrs or more. IF you take a 10 yr window, you tend to get a much different picture on CAGR but. The last point in your post is that I believe this is a luxury purchase and a timeshare. I don't believe that borrowing money for either is a wise choice even at zero interest, etc. So if one can't afford to pay for it in cash, I believe that means they can't afford it by definition. However, if it's not important enough for someone to cut other luxury items from lifestyle who can't afford it otherwise but decides to buy anyway, that's a double negative. Basically it's often the same as subprime and interest only mortgages to buy a house one couldn't afford to start with. I realize one can play with the numbers in many ways but it's really the principles that I feel are most important, the numbers are only used to illustrate that.

 

[lovin'fl]

All things with financial components are not investments. I don't see how DVC can be called an investment. It is definitely a financial expenditure and a financial commitment but an investment? No.



Great explanation, but I don't think it is needed for DVC.
----------------------

The level of decision making and consideration for buying DVC is comparable to buying a car, especially DVC resale.
I'm figuring average resale is $15,000 or so, maybe less?
Average new car purchase, say $15,000-$40,000.
DVC and a car purchase are in the same ballpark and I think are on an equal field re: are they an investment (secret answer: no). They are both depreciating assets headed to zero with maintenance costs during the life of the product.

I see a lot of time given to various calculations (time value of money, investments one could have made, should have made, would have made, ROI, future interest rates, etc) and the advice to try each resort before buying, or wait and do a few years of research to decide if DVC is right for you and which should be your home resort, and I do understand the intent of the advice but at some point let's put most of these purchases in context, it is a similar decision to buying a car, not investing for retirement or buying a house.
Some people will take a year or more to decide on a car but most people? That level of detail/time may not be needed (and is anyone calculating the lost opportunity cost by delaying DVC WDW vacations?).

Obviously my post, and now maybe this thread, are off topic (yet seemingly so on topic for every thread at DIS) that I can't help but wonder why so much overthinking?

Love this post.

 

[chitwndan]

A few points. Borrowing from a 401K adds additional risk if you leave or lose your job of having to potentially having to pay both the tax rate and the 10% penalty if under 59.5 I believe. The second is that one isn't talking taking the money out at 5 years but rather leaving it in for at least 5 yrs, basically drawing a distinction between short term money and long term money, we're really talking of leaving it in investment 20, 30, 40 yrs or more. IF you take a 10 yr window, you tend to get a much different picture on CAGR but. The last point in your post is that I believe this is a luxury purchase and a timeshare. I don't believe that borrowing money for either is a wise choice even at zero interest, etc. So if one can't afford to pay for it in cash, I believe that means they can't afford it by definition. However, if it's not important enough for someone to cut other luxury items from lifestyle who can't afford it otherwise but decides to buy anyway, that's a double negative. Basically it's often the same as subprime and interest only mortgages to buy a house one couldn't afford to start with. I realize one can play with the numbers in many ways but it's really the principles that I feel are most important, the numbers are only used to illustrate that.

You bring up an excellent point about the risks of borrowing from a 401K and I definitely would NOT recommend it for everyone. This is one option. A loan on an insurance policy would be a similar comparison with no risk of job change/loss, and there are others as well. You also bring up a good point in looking at long term vs short term money, which a 5 year payoff I would consider short term, and if you pay it back in that window the impact is a lot less than just comparing it to an 8% average return. This is doubly true when you consider the benefits of dollar cost averaging during the repayment terms.

In my case I’m comfortable with the move as my company has never had layoffs in 150 years, I have no plans on leaving anytime in the next 5-10 years unless it was an offer I couldn’t refuse. I am just trying to illustrate the point that as long as you are able to pay the loan back in the short term, and the interest rate is reasonable or you are paying the interest to yourself, comparing it to the 20-40 year long term market results might now be the best representation.

Absolutely it is a luxury good. So is going out to eat, cable, high speed internet, and air conditioning. You are looking it as a purchase, which it is sort of, but it is more of an expense with a utilization of cash flow much like the above luxury items. So if you cannot free up the cash flow to pay for the expense, then you will be hurting yourself and digging yourself into a hole. But if you can free up the cash flow, and pay it back in the short term, financing at reasonable rates is not a terrible decision, as long as it’s an informed decision. The enjoyment received from buying it now while my children are young, and having the memories from these years which can not be “paid back,” exceed the cost.

Tying this back to the OP what I am able to purchase today via resale far exceeds what I would be able to purchase direct. I could not afford to give my family a week in a studio every year paying retail prices, and what I am giving up from not buying direct is inconsequential.

 

[chitwndan]

All things with financial components are not investments. I don't see how DVC can be called an investment. It is definitely a financial expenditure and a financial commitment but an investment? No.



Great explanation, but I don't think it is needed for DVC.
----------------------

The level of decision making and consideration for buying DVC is comparable to buying a car, especially DVC resale.
I'm figuring average resale is $15,000 or so, maybe less?
Average new car purchase, say $15,000-$40,000.
DVC and a car purchase are in the same ballpark and I think are on an equal field re: are they an investment (secret answer: no). They are both depreciating assets headed to zero with maintenance costs during the life of the product.

I see a lot of time given to various calculations (time value of money, investments one could have made, should have made, would have made, ROI, future interest rates, etc) and the advice to try each resort before buying, or wait and do a few years of research to decide if DVC is right for you and which should be your home resort, and I do understand the intent of the advice but at some point let's put most of these purchases in context, it is a similar decision to buying a car, not investing for retirement or buying a house.
Some people will take a year or more to decide on a car but most people? That level of detail/time may not be needed (and is anyone calculating the lost opportunity cost by delaying DVC WDW vacations?).

Obviously my post, and now maybe this thread, are off topic (yet seemingly so on topic for every thread at DIS) that I can't help but wonder why so much overthinking?

Perfect explanation. I missed this post.

Tying it back to my point, would you say that you shouldn't buy a car until you can pay cash? Well sure that would be ideal, but I consider it more of an expense and the payment a utiliztion of cash flow and just need to be willing to look at where you money is going now and are you willing to adjust your spending to afford a used vs new car, or of you will takethe bus for the next 5 years to save up to buy the car. I’m not willing to take the bus for 5 years and would rather cut my expenses to free up cash flow to do so.

 

[chalee94]

at some point let's put most of these purchases in context, it is a similar decision to buying a car...

similar in financial outlay, yes. but for most of us, a car is a need and DVC is a want. (and even there, i could go to wdw and even stay in a DVC resort without being a DVC member.)

DVC is more specialized in nature, which means it works great for some people and not well at all for others. cars pretty much all work the same even if some features are slightly different and reliability and resale values can vary somewhat.

so naturally, i'd agree with dean that the logical end of your argument ought to be that people should be more thoughtful about spending on a car, than that they should sink thousands into DVC without putting much thought into it.

 

[elliececil]

I also love all these type threads. A big thank you to the folk here - Dean, JimMIA, Drusba, and crisi come to mind quickly but there are others - for making me think a lot more and not impulsively purchase, which has been hard to resist as financially I have and wouldn't miss the money.

I've been considering purchasing DVC resale (cash) but despite the emotional want haven't been able to get past my calculations that compared to renting it would take me 8-10 years to break even for a 75-100 point contract (late 40s no kids studio fine) and only save me ~$500 a year over the next 20 years. I know it depends on how you play with the numbers. I use 6% MF increase and have the rents increasing by a larger gap than now (compared to MFs) as time goes on.

Though Mar'15 I'll have 10 trips in less than 6.5 years, staying value, mod, deluxe, and DVC. 5 trips in that time to warm snorkeling locations. I do love Disney but long term commitment is also a deterrent. I'd have to convince myself it was a lot bigger savings in 20 years. I can still go without owning.

Earlier trips I paid Disney cash for stays (with ~30% off room rate) including GF and AKL club level so renting is already a savings for me. I've found individual owners have been great to work with and I like that I can get > 7 month booking advantage with them. I'm staying in an AKV value studio again in March and renting that at $12pp is cheaper than an SSR studio for the same nights at $9.25pp. Decided to add a night to try BLT and found an owner for that at $13pp for a lakeside room.

I've got a split stay at OKW/SSR in Oct to try them out as I've never been to either. I have been converted to buy SSR instead of AKV if I did one day buy as I have flexible travel time (just not longer than 6 nights at a time alas) and don't need to stay at one place regularly.

Anyhow, I still dream and am on the big 3 email lists, check new contracts, run them through my program [MF, % increase, # points, expiration year, purchase price - adjusted if possible points to sell or conservative resell price (using $20/pp)] and look at the yearly and total to year numbers to buy or to rent. It's fun to dream and play with the numbers. Sometimes it's hard not to pick up the phone and offer on one before it's snatched up by someone else!

 

[DVCMomBLT]

This is slightly off topic, but to those that compare owning vs renting, it misses one big non-financial aspect. The ability to control your own reservation. To me, even if owning DVC didn't save money over renting points, I would prefer to own for the control over my reservation. The ability to easily check availability. The ability to waitlist. Being able to book at 11 months without trying to find a renter that owns those points at that time. Ability to cancel reservations with no/less penalty. To me, those things are all more important than any savings.

 

[skier_pete]

DVC and a car purchase are in the same ballpark and I think are on an equal field re: are they an investment (secret answer: no).

Your points are mostly good, but are ignoring the one difference. A car for many people (and certainly for myself) is a necessity, NOT a luxury. My round trip to work is 50 miles, and I don't really have the option to take a bus (at least not an option that would take 3+ hours each way). My wife likewise works different hours in a different location, so having two vehicles is a necessity of life. Now some of that cost (new car versus used car) could be considered luxury, but it would be hard to make that estimate.

DVC purchase is PURE luxury, no matter how much we think we NEED to go to Disney, we don't.

I think a more apt comparison in your analogy is a boat or a motorhome. These items depreciate quickly, cost significantly to maintain and use, and are also clearly NOT investments. I know several people that own boats and used them all summer and would never consider giving them up. I know other people that bought boats (both new and used) and had them for a few years, and decided they weren't "worth" it and sold them.

Buying DVC is not unlike buying that boat. You can buy it shiny and new and know you have it for the best possible window. However, if you need to sell it some point later, you are going to take a good chunk of depreciation. If you buy that boat (DVC) used, then someone else took that upfront cost. You might not have the prettiest one, but it'll do the job, and if you need to sell it, you might even break even or come out a little ahead.

More worthless opinions from me.

 

[GOOFY D]

DVC purchase is PURE luxury, no matter how much we think we NEED to go to Disney, we don't.

I agree 100%. That is why I would never suggest anyone take out a long term loan or borrow from their 401k retirement accounts to purchase DVC. If I could not afford it, I would not but it. Everyone has their own situations or beliefs, but I agree it is a pure luxury and should be treated as such.

 

[elliececil]

those that compare owning vs renting, it misses one big non-financial aspect. The ability to control your own reservation. To me, even if owning DVC didn't save money over renting points, I would prefer to own for the control over my reservation. The ability to easily check availability. The ability to waitlist. Being able to book at 11 months without trying to find a renter that owns those points at that time. Ability to cancel reservations with no/less penalty. To me, those things are all more important than any savings.

These are some reasons I initially wanted to buy, especially after the ****** application had to be shut down. It was hard but I decided I am ok with giving up control, completely against my personality. I haven't had a problem finding someone to rent from yet - but I'm also not trying for low prices. The latest BLT one went from wanted ad posted (other website) to booked in less than 45 minutes, with someone I felt quite comfortable renting from.

But it would be fun to be able to check availability and decide to change from one resort to another if something opened up. I fly southwest so if I had to cancel I'd just be out the room... and if I had to cancel for some reason the loss of that money would probably be a small consideration.

 

[Dean]

financing at reasonable rates is not a terrible decision, as long as it’s an informed decision.

To me one excludes the other. Anything else is simply I want it and I will find a way to justify it.

Tying this back to the OP what I am able to purchase today via resale far exceeds what I would be able to purchase direct. I could not afford to give my family a week in a studio every year paying retail prices, and what I am giving up from not buying direct is inconsequential.

I do not believe the idea that buying now retail will put one in the same situation as buying years ago retail did for current owners. I feel DVC has priced themselves out of the market for many people. IMO this is definitely a case of past performance does not guarantee future results. As a rule, when people look at the financial issue, they really take about the best case scenario. They ignore the real risks over 40 yrs or so that the parks could close, that DVC will change to a product that is not desirable, that they'll lose their job or someone will pass away unexpected. While those risks can be qualified to a degree big picture, they do happen and for a given family, can be devastating such that owning DVC isn't a blessing. We've seen many people that bought and DVC was not a blessing for them. The "I'm filing bankruptcy, how can I keep my DVC" are similar situations are post I've seen a number of times over the years.

Tying it back to my point, would you say that you shouldn't buy a car until you can pay cash? Well sure that would be ideal, but I consider it more of an expense and the payment a utiliztion of cash flow and just need to be willing to look at where you money is going now and are you willing to adjust your spending to afford a used vs new car, or of you will takethe bus for the next 5 years to save up to buy the car. I’m not willing to take the bus for 5 years and would rather cut my expenses to free up cash flow to do so.

I would and I did. I do not believe that one "must continuously have a car payment", that's doubly true for a new car. It's like living in an area with very high housing costs, it does not exclude one from having to do math. If you can't truly afford it, that fact doesn't change because you live in an areas that has high costs. I'll add that being able to make the payment or qualify for X loan does not necessarily mean one can afford the house. Many people can qualify for about double the house they can actually afford.

I also love all these type threads. A big thank you to the folk here - Dean, JimMIA, Drusba, and crisi come to mind quickly but there are others - for making me think a lot more and not impulsively purchase, which has been hard to resist as financially I have and wouldn't miss the money.

I know I can speak for all you listed and many more in saying that this really is the goal, truthfully no matter what side of the issue they are on. The habits and decisions are the largest factor in personal security and building a nest egg, not the income. People who make bad decisions tend to do so across many areas, not just a DVC purchase.

This is slightly off topic, but to those that compare owning vs renting, it misses one big non-financial aspect. The ability to control your own reservation. To me, even if owning DVC didn't save money over renting points, I would prefer to own for the control over my reservation. The ability to easily check availability. The ability to waitlist. Being able to book at 11 months without trying to find a renter that owns those points at that time. Ability to cancel reservations with no/less penalty. To me, those things are all more important than any savings.

I do not believe anyone should buy unless there is savings or desired added value. Certainly once these criteria are met, one of the potential benefits is control within the system along with many risks of owning as well, which are more considerable than it seems many realize. This point is often made in such thread's, not sure if it has been in this one previously but it really only applies to owning vs renting DVC from another members and possibly to trying to exchange in from another timeshare. Cash is the ultimate control though, far more so than owning DVC.

 

[chitwndan]

To me one excludes the other. Anything else is simply I want it and I will find a way to justify it.

We'll have to agree to disagree.

 

[ELMC]

The enjoyment received from buying it now while my children are young, and having the memories from these years which can not be “paid back,” exceed the cost.

Tying this back to the OP what I am able to purchase today via resale far exceeds what I would be able to purchase direct. I could not afford to give my family a week in a studio every year paying retail prices, and what I am giving up from not buying direct is inconsequential.

You are making a very common mistake here by suggesting that owning DVC is the key to these vacation memories. There are literally dozens of options for lodging during a Disney trip and I am fairly certain that people who choose non-DVC stays to visit Disney World still have an enjoyable time with their families. In my opinion, this is a poor excuse/justification/rationalization to purchase DVC.

Your points are mostly good, but are ignoring the one difference. A car for many people (and certainly for myself) is a necessity, NOT a luxury. My round trip to work is 50 miles, and I don't really have the option to take a bus (at least not an option that would take 3+ hours each way). My wife likewise works different hours in a different location, so having two vehicles is a necessity of life. Now some of that cost (new car versus used car) could be considered luxury, but it would be hard to make that estimate.

I would suggest that if you look at the cars many people choose to drive vs. what kind of car they could actually afford to buy, many cars qualify as luxury purchases. This is similar to the point that Dean makes regarding leasing cars. Some random person can't afford to buy an $80,000 Mercedes, but an $800-1,000 a month lease payment for three years is pretty doable, so that's what they drive. It's a very clever way of marketing a less than optimal financial decision.

 

[chitwndan]

You are making a very common mistake here by suggesting that owning DVC is the key to these vacation memories. There are literally dozens of options for lodging during a Disney trip and I am fairly certain that people who choose non-DVC stays to visit Disney World still have an enjoyable time with their families. In my opinion, this is a poor excuse/justification/rationalization to purchase DVC.

You bring up an excellent point. Yes I can still pay cash to go to Disney every year, but every dollar I spend over the maintanence fees, assuming I wish wait to purchase DVC down the road, is wasted. I will run some numbers tonight to compare and contrast, but on the surface it seems to make more sense to buy now.

A lot of people bring up you shouldn't buy what you can't afford. To afford means having the ability to pay for something. I can afford this. I have the income stream to do so. I have 50-75% of the cash (depending on if the great deal I signed get's ROFR'd or if I buy "list" resale prices) in a bank to pay for it. But draining my cash surplus which allows me to weather unexpected expenses without impacting my cash flow seems to be a poorer decision to me. Having a cash cushion, as well as short and long term disability insurance provides, protection to your income stream which is our greatest asset.

The annual cost of self financing the DVC over the next 5 years is far less that the cost's of the loss in income from the two maternity leaves and 6 months without pay which we endured when my DS was doing her clinicals. We weathered this fine. We have the income stream now to do this. But I will run the numbers of paying cash for the next 5-10 vacation hotel costs and banking the difference vs taking a loan on my assets to pay for it.

 

[skier_pete]

A lot of people bring up you shouldn't buy what you can't afford. To afford means having the ability to pay for something. I can afford this. I have the income stream to do so. I have 50-75% of the cash (depending on if the great deal I signed get's ROFR'd or if I buy "list" resale prices) in a bank to pay for it. But draining my cash surplus which allows me to weather unexpected expenses without impacting my cash flow seems to be a poorer decision to me. Having a cash cushion, as well as short and long term disability provides, protection to your income stream which is our greatest asset.

The annual cost of self financing the DVC over the next 5 years is far less that the cost's of the loss in income from the two maternity leaves and 6 months without pay which we endured when my DS was doing her clinicals. We weathered this fine. We have the income stream now to do this. But I will run the numbers of paying cash for the next 5-10 vacation hotel costs and banking the difference vs taking a loan on my assets to pay for it.

I agree with your comments. Finance if you need to as long as you do it in a smart way and understand how it affects you.

In our case, we took out a HELOC (Home Equity Line of Credit) with the original intent to do some work on our house. We decided to also take a loan for $12,000 to buy the DVC contract we did. We pay 3.99% interest on the loan, but then since it is a home equity long we are able to write it off our taxes. So overall, we are paying an extra $1560 in interest over the next 10 years instead of paying with cash up from. That's an extra $156 a year, or $13 a month. As chitwndan wrote, I would prefer to do this than to deplete my cash reserves, which are large enough that I could pay that off, but in my view it would be harder to force myself to re-save that money than to pay off the loan.

My plan right now is to use work bonuses to possibly pay it off faster, though that will somehow depend on where interest rates move over the next few years. (Our HELOC is a variable rate, but you can also "lock in" money, which in this case I did as I don't see the rates getting much better than 3.99%. If interest rates rise, I may leave the )

Now, someone else might choose to finance directly and pay 12% interest or something, and might think that's completely reasonable to do as well, even if they are paying $6000 more over the life of the loan than I. While I would consider that a bad choice, that other person thinks its perfectly reasonable and how they can afford it, and that's fine by them.

Lastly, for a moment going back to the analogy with the car, I would agree that the analogy does work when you compare to buying luxury car such as a Lexus or Mercedes. There's a based amount of money that you HAVE to pay for a car, then there's the amount you WANT to pay. Again, in my case, I could afford to buy a Lexus (or a boat) if that's what I wanted, but then I couldn't afford to travel to Disney. Disney is my preferred luxury. Some people can afford both, I can't. I pick and choose, and I chose Disney, and I chose DVC as the best value for my Disney spending dollar. Is it possible that I will spend more on Disney now that I own DVC? I suppose, but right now the plan is to spend LESS on food than we used to, and hopefully less on park tickets by taking advantage of APs.

 

[nalajms]

I have 50-75% of the cash (depending on if the great deal I signed get's ROFR'd or if I buy "list" resale prices) in a bank to pay for it. But draining my cash surplus which allows me to weather unexpected expenses without impacting my cash flow seems to be a poorer decision to me.

I think draining your surplus is the smarter decision, only if the cash surplus is solely there for unexpected expenses. What are your chances of an unexpected expense? And couldn't you pull out the 401k loan if the need arises? It would reduce the amount of interest you pay. But you'd have to be diligent about paying back into your savings that you would have if it was a loan.

And if you're 75% there, why not just wait a few months until you have the full amount? Or buy half what you need now with cash, and another one later. Or even consider skipping a vacation to put the money towards the resale purchase.

 

[chitwndan]

I think draining your surplus is the smarter decision, only if the cash surplus is solely there for unexpected expenses. What are your chances of an unexpected expense? And couldn't you pull out the 401k loan if the need arises? It would reduce the amount of interest you pay. But you'd have to be diligent about paying back into your savings that you would have if it was a loan.

And if you're 75% there, why not just wait a few months until you have the full amount? Or buy half what you need now with cash, and another one later. Or even consider skipping a vacation to put the money towards the resale purchase.

I personally wouldn’t be able to sleep at night if I didn’t have cash “on hand” to handle unexpected expenses.

As far as waiting a year, due to timing of multiple things, like my child being just under 3 when we plan to go so therefore free, we will be going back next year. Delaying the trip will cost us a significant amount in food and theme park costs. Plus we are taking our nieces, so again if we wait we’d have to get a 2BR which will cost a lot more than the 1BR and cost more next year than this. So we are taking the trip next year. I can afford to pay for it. The question now is how to maximize the purchase of this trip and in turn, the following trips. Is it better to buy DVC now knowing we will be traveling moving forward, or to pay for hotels and bank the difference. Again I’ll run numbers tonight, but I’m thinking the former will look best.

What benefit would it serve me to drain my cash reserves? Yes I would reduce my interest, but since my interest is going back to me there is really no interest cost, just the opportunity cost of not having it in the account for 5 years which I mentioned previously. Plus, despite people’s best efforts to save, it’s always easiest when the money is taken out of your check before you have the chance to decide what to do with it. It’s one reason why I’ve been diligently putting as much into the 401K as I can afford for years.

In addition, you can only have 2 loans out on your 401K at one time. So having cash on hand I can tap into as often as I want in any amount I want provides me with more financial flexibility. I just put 2K into my car. So had I drained my reserves previously, I’d already have one of my two loans used, and be on pins and needles waiting for the other shoe to drop, or be paying credit card interest rates.

I guess if I had put less into the 401K over the years in an attempt to get that money working for me, and had built up a larger chunk of money in the bank earning almost 0 interest, I could then use that cash now. I’m personally glad I put as much into there as I did and have it available to me if I want it, and it earned in the mean time.

But the final decision comes down to having a cash cushion provides peace of mind, that I am unwilling to do without. It appears for you, that you would be more comfortable with no cash cushion then you would be in having a 401K loan. That’s a personal decision that we disagree on.

 

[brunoT]

All those factors are still there when you buy 20 years later for more money and lose 40% of the length of the contract. I just think the best value is buying early when resort opens. I would rather buy poly at 180 expiring in 2066 than by at 95 expiring in 2042.

You don't get what he's saying. $60 twenty odd years ago would have more buying power than today. So you paid more than $60 in today's buying power. If you paid that much then it'd be roughly the same as paying double that today.

If one does not understand the time value of money, inflation, and opportunity costs (lost income on that money if invested), one should be very careful about spending money on real estate type investment/purchases.

Buying new today, just like back then, means a virtually assured built-in "depreciation hit" as your points are instantly worth less than the points DVC is selling directly should you attempt to convert them back to cash (sell them).

Those who purchase resales are merely avoiding this built-in hit by buying at the already-depreciated price.

Paying $68 for points in 2014 and paying $68 for points in the 1990's is not the same thing by a long shot.

 

[brunoT]

Your points are mostly good, but are ignoring the one difference. A car for many people (and certainly for myself) is a necessity, NOT a luxury. My round trip to work is 50 miles, and I don't really have the option to take a bus (at least not an option that would take 3+ hours each way). My wife likewise works different hours in a different location, so having two vehicles is a necessity of life. Now some of that cost (new car versus used car) could be considered luxury, but it would be hard to make that estimate.

DVC purchase is PURE luxury, no matter how much we think we NEED to go to Disney, we don't.

I think a more apt comparison in your analogy is a boat or a motorhome. These items depreciate quickly, cost significantly to maintain and use, and are also clearly NOT investments. I know several people that own boats and used them all summer and would never consider giving them up. I know other people that bought boats (both new and used) and had them for a few years, and decided they weren't "worth" it and sold them.

Buying DVC is not unlike buying that boat. You can buy it shiny and new and know you have it for the best possible window. However, if you need to sell it some point later, you are going to take a good chunk of depreciation. If you buy that boat (DVC) used, then someone else took that upfront cost. You might not have the prettiest one, but it'll do the job, and if you need to sell it, you might even break even or come out a little ahead.

More worthless opinions from me.

There is also the fact that unlike a used boat, your DVC points purchased via resale are not inferior to "new", (except that you can not use them to go to the non-Disney resorts should you wish to use them for that.) Your points won't possibly break down and leave you stranded like a used vehicle. Used boats and cars depreciate in utility value as well as economic value. DVC points do not (other than slightly shorter lives vs having purchased new) making them an even better value as resales.

Finally, the internet is full of expert advice about the folly of borrowing and depleting savings for luxuries such as deluxe resort vacation prepayment plans. I won't repeat them. But a good rule of thumb? If you can't write a check for it and not miss the money, maybe DVC shouldn't be your highest priority right now.

How many more debt bubbles are we going to burst in America before we wake up? How many people are going to have to lose homes when a job ends? Necessities first, then Luxuries.

 

[nalajms]

It appears for you, that you would be more comfortable with no cash cushion then you would be in having a 401K loan. That’s a personal decision that we disagree on.

Agree to disagree I only keep enough cash for monthly cash flow. Everything else is in stocks, mutual funds, and some bonds. It did bite me in the butt when the market crashed in 2008/2009, but even then I had no problems getting a zero interest credit card to float for a few months rather than selling in a down market.

The question now is how to maximize the purchase of this trip and in turn, the following trips. Is it better to buy DVC now knowing we will be traveling moving forward, or to pay for hotels and bank the difference.

You'd also have to consider what availability will be like when you are able to book after purchasing. Will you be satisfied with SSR? or would you only want to be at BLT?