Not drinking the cool aid on resale!!

[Msmithmd]

Chitwndan has clearly done a lot of careful analysis on this purchase strategy. I will concede the point, that for a very small fraction of buyers this isn't a terrible plan.

For the vast majority of buyers, though, I would simply propose the following sixty second exercise.

Before you buy using a loan on your primary home, or a loan against your retirement fund, do the following:

Stand in front of your bathroom mirror and look yourself straight in the eye. Say this:

"Taking a loan against my retirement or house to buy a timeshare is a good idea."

Repeat this statement ten times, while looking yourself in the eye. If you're still convinced after that, more power to you. I believe the majority of folks will realize how silly this statement sounds around four or five repetitions. A few really will have a decent plan and be content.

My point is simply that for the large majority of potential timeshare purchasers, a loan of any type isn't a good idea. But to each their own.

It really boils down to understanding risk and opportunity levels. Too many buyers don't take a realistic assessment before jumping in. Heck, too many just buy direct on vacation, without even being aware of Disboards or the resale market altogether. So folks even reading this before buying are already a leg up on the majority.

 

[skier_pete]

Before you buy using a loan on your primary home, or a loan against your retirement fund, do the following: Stand in front of your bathroom mirror and look yourself straight in the eye. Say this:

"Taking a loan against my retirement or house to buy a timeshare is a good idea."

I can do that with no qualms at all. A major reason we bought into DVC this year is that DW and I have decided over the last 8 years of traveling to Disney that we want to keep doing it, even after we retire. And we'd like the ability to keep doing it after we retire. We could continue to stay at Disney properties for now paying full hotel prices, but once we are on a fixed income, with the rate of increase, I don't see how that could happen. By investing in DVC now, and paying off the "principal" while we are working, we can then stay at Disney solely on the maintenance fees. As I look at it, it makes smart financial sense as a long-term investment - for me.

Let me ask a question in return: We did two major purchases this year. We re-did all the windows in our house for $9,000. They really needed it as we were feeling the breeze through them in the wintertime. We bought into DVC for $12,000. We didn't have enough cash for We "paid cash" for the windows, and "used the HELOC" for the DVC.

We could have just as easily called it the opposite, right? Would it make you feel better if I told you I paid for most of the DVC in cash, and instead used my HELOC for the windows? Would you consider a home improvement a good use of my loan? If you would, then I would say what's the difference what I used the money for?

 

[Msmithmd]

No difference at all, Pete. My post isn't directed at you or other posters who have really thought through using debt to buy DVC. It is more intended for those who feel like it is "normal" or "ok" to buy luxuries like a timeshare on credit.

You may think that is a good idea. I don't. But it is your money (and interest) to spend. So spend away.

 

[chitwndan]

It really boils down to understanding risk and opportunity levels. Too many buyers don't take a realistic assessment before jumping in. Heck, too many just buy direct on vacation, without even being aware of Disboards or the resale market altogether. So folks even reading this before buying are already a leg up on the majority.

Very true.

If you are here, and to tie this way back to to OP which I completely derailed, sorry, you will likely be purchasing re-sale, which is a huge savings from retail. So if things do go sideways you can in theory sell it at a minimal loss if any.

I'd hate to be someone who purchased resale at the 12.99% interest rates they were showing me at the DVC presentation I went on, and having to sell for 70% of what I paid.

 

[ELMC]

This is where we disagree. These vehicles are cornerstones in a financial portfolio. While they do have cash value that is accessible, I would advocate doing so only in an emergency or other pressing scenario and certainly not for a frivolous luxury purchase such as DVC (or any timeshare for that matter).

So let me counter with two points:

- 1st. While my friends and most people my age were putting 5% into their 401K, I was putting in 10-15% as I didn't need the money so best to sock it away, especially since I could have access to it if need be. So I ask both of you would you suggest to that late 20’s person many years ago to put less into the 401K over the years, and instead of attempting to get that money working for them, to build up a larger chunk of money in the bank earning almost 0 interest, so they could use later?

I stand by my original statement, but I would also say that my original statement does not apply to you. You are clearly using your 401k in an atypical manner.

But the bigger point is that many people buy DVC when they are living on the financial wire, and they are one setback away from trouble. We've seen it on here numerous times. My dog got hit by a car and needs an operation...time to sell my DVC. I got laid off and couldn't find a job for three months...time to sell my DVC. I'm getting divorced and there are not enough assets to offset the DVC...time to sell it. The list goes on.

It sounds like in your case you are engaging in debt leveraging, which is not really a worthwhile discussion to have on these boards. In order to have a meaningful conversation about leveraging debt to buy DVC we would have to get into specifics of individuals' financial situations, which is not a good idea. So the conversation typically takes place in using broad generalities that don't paint an accurate enough picture.

But I'll concede the point that in your case you're not one margin call away from financial disaster. Just keep in mind that not everyone who is reading this thread can say the same thing.

 

[chitwndan]

I stand by my original statement, but I would also say that my original statement does not apply to you. You are clearly using your 401k in an atypical manner.

But the bigger point is that many people buy DVC when they are living on the financial wire, and they are one setback away from trouble. We've seen it on here numerous times. My dog got hit by a car and needs an operation...time to sell my DVC. I got laid off and couldn't find a job for three months...time to sell my DVC. I'm getting divorced and there are not enough assets to offset the DVC...time to sell it. The list goes on.

It sounds like in your case you are engaging in debt leveraging, which is not really a worthwhile discussion to have on these boards. In order to have a meaningful conversation about leveraging debt to buy DVC we would have to get into specifics of individuals' financial situations, which is not a good idea. So the conversation typically takes place in using broad generalities that don't paint an accurate enough picture.

But I'll concede the point that in your case you're not one margin call away from financial disaster. Just keep in mind that not everyone who is reading this thread can say the same thing.

Well I'll happily admit I'm new to the boards and perhaps haven't seen the horror stories shared here. I would agree that buying a large luxury item when leveraged to the hilt or living on the financial wire as you put it is a very stupid decision.

I most certainly am engaging in debt leveraging, but so is everyone with a mortgage so given this is a pseudo real estate purchase I was a bit surprised at the reaction.

Regardless I think at the end of the day we all agree that you shouldn't buy unless you have the means to do so and if not paying cash a very careful analysis should be done before taking on debt or tapping into retirement or insurance assets.

 

[sndral]

- 1st. While my friends and most people my age were putting 5% into their 401K, I was putting in 10-15% as I didn't need the money so best to sock it away, especially since I could have access to it if need be. So I ask both of you would you suggest to that late 20’s person many years ago to put less into the 401K over the years, and instead of attempting to get that money working for them, to build up a larger chunk of money in the bank earning almost 0 interest, so they could use later?
...

Two things this discussion has made me think about - socking investment money into a 401K or a bank savings/CD are not the only alternatives, you could have put 10% into your tax deferred account and 5% into a regular investment portfolio - more risk than a savings account or hiding money under the mattress, of course, but also more potential gain. You also might benefit from the capital gains tax rate when you liquidate from the non tax deferred investments.

The second point is that when you repay that loan from your 401k you will be paying principle and interest with dollars you pay taxes on - so doesn't your true lost opportunity cost need to include the cost of the taxes on the dollars you are using to repay the loan with? And, to add insult to injury, you will of course have to pay tax on those dollars again when you retire and start withdrawing from your 401k. I suppose the significance of the hit depends on the tax bracket and thus would be less for someone in a lower tax bracket v. someone in a higher bracket.

 

[Dean]

So, you are suggesting that I shouldn't take out a loan to buy a car? That I should only buy it when I have $20,000+ in cash available?

I'm not suggesting anything specifically for you but in general terms I'd suggest people buy the car they can afford, what they can pay with cash. Even then I wouldn't suggest new until one had themselves in a very strong financial position with wealth saved. I know that's nor normal but normal is broke.

I can't pay cash now, I wish I could but two maternity leaves and a 6 month clinical (6 months of working for no pay) for my DW have kept those reserves low. We've built them back up and then some allowing us to take our most recent trip where we learned about DVC through the presentation.

As I mentioned in my PM where we discussed asset allocation, I don't feel your position is wrong. It's a common, conservative, tried and true approach. You will never go broke doing it that way. I just have some other ideas and concepts that fly in the face of it.

As pete said, “There's risk to everything outside of putting cash in a safe deposit box. To me, those are much larger risks than taking out a low-interest loan to pay for something that you really want, as long as you know that you can afford to pay that loan off.”

I agree completely. Assuming it’s a fully informed decision, this is a decision based on their risk tolerance. Some people will not invest their money into balanced mutual funds. They would rather put their money in a CD or savings account. They are unwilling to take on the risk for the benefit.

All financial instruments have risks and benefits associated with them.

If there is no benefit to taking on additional risk one shouldn’t regardless of the financial instrument. If there is a benefit you need to weigh the cost or risk vs the benefit. Just like a chainsaw is not inherently bad; if there is a benefit to using it you need to weigh the cost or risk vs the benefit. The risk of both is greatly increased when used by someone who does not know what they are doing, are careless and/or use it inappropriately,

Where you eliminate your financial risk by having no debt, I manage my risk my protecting my income stream which allows greater utilization of my biggest asset, my income stream.

As far as if others read this and take away that financing is a good thing and buy when they can't afford it; then clearly they didn't read everything. It is a tool with associated risks, is neither good nor bad provided you can afford it.

Now if you don’t mind, I’m going to go do some options trading or margin trading and see if I can get that cash together so I don’t need to take a loan on the 401K.

As I said earlier, my view is if one can't pay for a luxury purchase in cash one can't afford it at that time or it's not important to them or both. Others are welcome to hold their own opinion. Just think of this when you see someone having to sell or talking about bankruptcy or losing their job.

 

[Ansky]

I agree with chitwndan on this topic. We did something similar when we bought our points. We had the cash available but didn't want to take such a large chunk of our savings out all at once. Taking out a loan cost us a few hundred dollars more because we paid interest on a loan over the next few years (we did pay the loan off early too) but we still had all of our cash available in case of an emergency, which almost happened when I was told I was going to be laid off (which fortunately didn't happen).

While I do agree that if you don't have any savings and are taking out thousands in loans for DVC it is probably not the best idea, I think there are a few exceptions to the "never take out a loan rule for DVC" that some people seem to have.

As far as buying a car with cash, I think that is a bit far fetched. Of course in a perfect world that would be great to never have a car payment. And of course you should buy a car that you can afford. But paying cash for a reliable car upfront is not really an option for most people. I know only a couple people that have gone and paid cash for a car. I know it happens but not many people can drop that kind of money on a new car every few years in cash. I may be in the minority here though.

Also, Dean, you said to think of this when someone is having to sell due to bankruptcy or losing a job. Even if you paid for your DVC in cash, if you lose your job most people would probably have to sell. Not many people are so well off that they can own DVC points AND not work. That isn't a fair argument in my opinion.

 

[Johnny D]

I went a way for a little bit because I had to earn some $$ to afford my DVC membership LOL. Wish I had the time to post more and respond to every counter opinion, but I am pretty busy. Just wanted to do a quick follow up on a previous thread.

I do realize my analysis and opinion are in the minority but add value to some. I do believe a benefit to potential DVC buyers would be to educate them on the true "cost" of owning DVC. One must consider TMV in that calculation. Another poster pointed to opportunity cost in their consideration. To me, the terms are synonymous in this discussion. A person cannot do the same thing with the same dollar. You have to make a choice. The choice here is invest those dollars or buy (not invest) into the DVC system (or resort). I am a resort buyer first and foremost and will occasionally use my BWV membership (bought is 1999 for around $64pp) to stay at VWL, AKL (have 3 year old twins...just because of the animals), and BCV. None of the other DVC resorts in Orlando appeal to me.

My VGF membership bought in January of 2014 at $150pp will ALWAYS be used for VGF. Everyone can agree that DVC resort prices have dramatically increased. The question always becomes is it worth it? I analyzed it many ways, but the factors I used when plunking down 30K for my 200 VGF point were:


1) Very small resort and staying there on any type of regular basis was not going to happen unless you own. I believe people are finding that out to be very true as time goes on (currently 52% sold out 79% inventory declared) It is still almost impossible to get a studio at the slowest time of the year.

2) Staying at GF is just so expensive, and I would never stay there for cash.

3) The process of renting points and trying to find the week you want is not appealing in the least and something you will not be able to count on. I like getting on line and in a few seconds have my room.

4) It makes Financial sense. Here is the simplest of the many financial ways I looked at it.

I have different investments at different risk levels. There is always a debate on what number to use when you use your TVM calculation. 5% is the number for me. Many of you use 8%. A guy from the UK used 3%. So instead of spinning this into a mutual fund investment debate, lets just say everyone can use the number they feel applies to their investment portfolio or bank account.

Back to the financial analysis.

What I lost because I bought 200 points at VGF for 30K in year 1.

$30,000 x .05 = $1500

Note: No one I have seen has taken fund fees or taxes into account on distributions even if you don't sell the fund. I did and will add it to my analysis.

$1500-$150 (estimate depending on your tax bracket, mutual fund fees, and declared mutual fund distribution.)

Net potential investment loss: $1350

2013 Dues: $1084

Total Opportunity and dues cost: $2434


I have booked a total of 12 nights at VGF in 2014. 5 in October for F & W and 7 nights in the beginning of December. That is 210 points used in standard view studios. I banked by 2013 points, so for the next 20 years, if managed correctly, I should be able to do this or something similar.

$2434/12 =$202 per night at pretty awesome resort and a difficult times to book.

note: Cheapest I have seen GF or VGF cash, including tax is $555.

If I rented points:

$14 pp x 210 = $2910 (compared to $2434; opportunity cost + dues cost)

So was buying at $150 pp at VGF worth it? It was to me.


If anyone has been looking at VGF resales they are holding pretty steady and even rising due to the price increase to direct sales. I did factor in what I felt an exit price would look like after 10 years just is case. I initially thought $130. I still think it will be at that price or higher.

A quick note the the "your just trying to justify your purchase" people. Not really. I really don't see how exchanging your view point and analysis is trying to justify; It is just sharing how each of us look at something differently. The system is the same for everyone, but where you own, to me makes it a whole different experience.

 

[DVCMomBLT]

I went a way for a little bit because I had to earn some $$ to afford my DVC membership LOL. Wish I had the time to post more and respond to every counter opinion, but I am pretty busy. Just wanted to do a quick follow up on a previous thread.

I do realize my analysis and opinion are in the minority but add value to some. I do believe a benefit to potential DVC buyers would be to educate them on the true "cost" of owning DVC. One must consider TMV in that calculation. Another poster pointed to opportunity cost in their consideration. To me, the terms are synonymous in this discussion. A person cannot do the same thing with the same dollar. You have to make a choice. The choice here is invest those dollars or buy (not invest) into the DVC system (or resort). I am a resort buyer first and foremost and will occasionally use my BWV membership (bought is 1999 for around $64pp) to stay at VWL, AKL (have 3 year old twins...just because of the animals), and BCV. None of the other DVC resorts in Orlando appeal to me.

My VGF membership bought in January of 2014 at $150pp will ALWAYS be used for VGF. Everyone can agree that DVC resort prices have dramatically increased. The question always becomes is it worth it? I analyzed it many ways, but the factors I used when plunking down 30K for my 200 VGF point were:


1) Very small resort and staying there on any type of regular basis was not going to happen unless you own. I believe people are finding that out to be very true as time goes on (currently 52% sold out 79% inventory declared) It is still almost impossible to get a studio at the slowest time of the year.

2) Staying at GF is just so expensive, and I would never stay there for cash.

3) The process of renting points and trying to find the week you want is not appealing in the least and something you will not be able to count on. I like getting on line and in a few seconds have my room.

4) It makes Financial sense. Here is the simplest of the many financial ways I looked at it.

I have different investments at different risk levels. There is always a debate on what number to use when you use your TVM calculation. 5% is the number for me. Many of you use 8%. A guy from the UK used 3%. So instead of spinning this into a mutual fund investment debate, lets just say everyone can use the number they feel applies to their investment portfolio or bank account.

Back to the financial analysis.

What I lost because I bought 200 points at VGF for 30K in year 1.

$30,000 x .05 = $1500

Note: No one I have seen has taken fund fees or taxes into account on distributions even if you don't sell the fund. I did and will add it to my analysis.

$1500-$150 (estimate depending on your tax bracket, mutual fund fees, and declared mutual fund distribution.)

Net potential investment loss: $1350

2013 Dues: $1084

Total Opportunity and dues cost: $2434


I have booked a total of 12 nights at VGF in 2014. 5 in October for F & W and 7 nights in the beginning of December. That is 210 points used in standard view studios. I banked by 2013 points, so for the next 20 years, if managed correctly, I should be able to do this or something similar.

$2434/12 =$202 per night at pretty awesome resort and a difficult times to book.

note: Cheapest I have seen GF or VGF cash, including tax is $555.

If I rented points:

$14 pp x 210 = $2910 (compared to $2434; opportunity cost + dues cost)

So was buying at $150 pp at VGF worth it? It was to me.


If anyone has been looking at VGF resales they are holding pretty steady and even rising due to the price increase to direct sales. I did factor in what I felt an exit price would look like after 10 years just is case. I initially thought $130. I still think it will be at that price or higher.

A quick note the the "your just trying to justify your purchase" people. Not really. I really don't see how exchanging your view point and analysis is trying to justify; It is just sharing how each of us look at something differently. The system is the same for everyone, but where you own, to me makes it a whole different experience.

You need to factor in the depreciation cost. Your math assumes you could always sell for what you paid for it. Given that you paid retail, that is fairly unlikely. Especially when you consider the 10% commission you would pay.

And if you never plan to sell, not only do you have the investment opportunity cost, but your entire initial investment will be worth $0.

if you sold for $130 in 10 years, that would be $23,400 ($26,000 - 10% commission). That is a loss of $6,600. Amortized over the 10 years, that is $660 per year. In your own example, the correct math would be:

$14 pp x 210 = $2940 (compared to $3094; opportunity cost + dues cost + depreciation).

actually, this should really be x 200 if you want apples to apples. Or else you have to add 5% to your side of the equation to account for the "missing" 10 points:

$14 pp x 200 = $2800 (compared to $3094; opportunity cost + dues cost + depreciation).

And if you never sold, you would average $600 per year in depreciation ($30,000 / 50).

Bottom line is you are omitting approximately $600 in annual costs in your comparison.

 

[Johnny D]

You need to factor in the depreciation cost. Your math assumes you could always sell for what you paid for it. Given that you paid retail, that is fairly unlikely. Especially when you consider the 10% commission you would pay.

And if you never plan to sell, not only do you have the investment opportunity cost, but your entire initial investment will be worth $0.

if you sold for $130 in 10 years, that would be $23,400 ($26,000 - 10% commission). That is a loss of $6,600. Amortized over the 10 years, that is $660 per year. In your own example, the correct math would be:

$14 pp x 210 = $2910 (compared to $3094; opportunity cost + dues cost + depreciation).

And if you never sold, you would average $600 per year in depreciation ($30,000 / 50).

Bottom line is you are omitting approximately $600 in annual costs in your comparison.

My math doesn't assume I could sell it for what I paid for it(paid $150 projected selling at $130). I made an assumption what I may be able to sell it for in 10 years if I decided to go that route, which is not what I attend to do. Because the future value is pure speculation for all of us, it is nonsense to debate it, though one has to make some assumptions as there doing a complete analysis or due diligence.

No resort that was purchased at opening prices has followed the straight line depreciation formula you are suggesting. Even SSR, which is the popular buy in resort for many opened up at $79 with incentives. Using your straight line depreciation, should go resale for around $63 pp. Most SSR are going around $68 to $70 if points are not stripped.

SSR is one of the least popular resorts to stay but one of the most popular to system buy.

I could point to BWV,BCV.VGC, who seem to be going against gravity.

But even using you math...and using straight line depreciation, which in 10 years I don't feel will apply to VGF, There is almost zero difference in renting from Dave's and buying in early given my calculation. And there is a HUGE difference in flexibility and probability of getting what and when you want by owning.

 

[LisaS]

As far as buying a car with cash, I think that is a bit far fetched. Of course in a perfect world that would be great to never have a car payment. And of course you should buy a car that you can afford. But paying cash for a reliable car upfront is not really an option for most people. I know only a couple people that have gone and paid cash for a car. I know it happens but not many people can drop that kind of money on a new car every few years in cash. I may be in the minority here though.

I bought my first new car in my late 20s after driving a used car for several years. It was an inexpensive car but I didn't have a lot of money saved (student loans!) so I took out a car loan through the credit union at work. After paying off the loan I continued to deposit the monthly loan payment amount into the credit union. I was used to living without that money so I didn't miss it. When it was time to replace that car I had more than enough money in that account to pay cash. It's a few decades later and I still make my monthly "car payment" into the credit union every month and have been able to pay cash for every car we've ever purchased. We tend to keep our cars a long time so I have several years to save up in between purchases.

 

[DVCMomBLT]

My math doesn't assume I could sell it for what I paid for it(paid $150 projected selling at $130). I made an assumption what I may be able to sell it for in 10 years if I decided to go that route, which is not what I attend to do. Because the future value is pure speculation for all of us, it is nonsense to debate it, though one has to make some assumptions as there doing a complete analysis or due diligence.

No resort that was purchased at opening prices has followed the straight line depreciation formula you are suggesting. Even SSR, which is the popular buy in resort for many opened up at $79 with incentives. Using your straight line depreciation, should go resale for around $63 pp. Most SSR are going around $68 to $70 if points are not stripped.

SSR is one of the least popular resorts to stay but one of the most popular to system buy.

I could point to BWV,BCV.VGC, who seem to be going against gravity.

But even using you math...and using straight line depreciation, which in 10 years I don't feel will apply to VGF, There is almost zero difference in renting from Dave's and buying in early given my calculation. And there is a HUGE difference in flexibility and probability of getting what and when you want by owning.

Right, that's the problem. You made the assumption, but didn't include it in your formula. If you'd like to come up with a different value than $130, then fine. But that is the number you assumed, but you left it out of your calculation.

None of the assumptions were made by me. Everything came from your post.

If you plan on keeping it until expiration, it will be worth $0. Whether is is straight line or not is irrelevant. You will have something that you paid $30,000 for that is now worth $0. That cost needs to be factored in your calculation. You completely omitted it.

 

[Msmithmd]

Don't forget inflation. A $79 opening price for SSR in 2004 would be the equivalent of $96.41 in 2013 dollars. So for that resort, at current resale exchange prices ($75), it has dropped over twenty percent of its' inflation-adjusted value in the first eleven years of operation.

Look further back at OKW. It opened at $51 in 1991. Adjusting that price to 2013 dollars would give you $85.95 as the inflation-adjusted cost of OKW at opening. So OKW currently reselling at $70 is retaining slightly more of its' original value than SSR, even though it expires much sooner.

I agree with the basic premise that purchasing DVC, even direct for a new resort, saves money over paying cash for a reservation at the accompanying deluxe resort. That point is obvious to most everyone, or there would be no market for DVC in its' current form.

But where the debate starts to go off the tracks, is when someone tries to say that a resort purchased ten or twenty years ago at the same nominal dollar value as it resells today hasn't lost money. The TVM calculations go a step further down this road.

Never forget as a basis, that a dollar today doesn't buy what it did in 1990 or 2000, or you can make some pretty specious arguments.

 

[ELMC]

Also, Dean, you said to think of this when someone is having to sell due to bankruptcy or losing a job. Even if you paid for your DVC in cash, if you lose your job most people would probably have to sell. Not many people are so well off that they can own DVC points AND not work. That isn't a fair argument in my opinion.

This is the exact point that I (and several others) are trying to make. If losing your job means that you have to liquidate things like DVC, then perhaps owning DVC is too risky a financial decision. DVC is a luxury purchase and that implies that it is something you should typically be buying after all the necessities are taken care of (with the possible exception of a mortgage). However, most people don't have the discipline to do this and they spend the first $15,000 they manage to accumulate on a DVC purchase. Then when anything goes wrong (car breaks down, job loss, unexpected expense at the house, etc.) they have to sell their DVC (often at a loss). From a strict financial perspective, it's not a strong move.

Owning DVC is not necessary to visit Disney or even to stay in a DVC villa. It is also not a product that is meant for everyone. That's not a judgmental statement, it's a factual one. [Ferraris are great cars, but they're not meant to be owned by everyone. I am in the group of people who should not be buying a Ferrari.] The problem is that if DVD were to stick only to their true target market, they would not be making the profits that they currently are. So instead, they expand their target market to include anyone without a bankruptcy who has the ability to pay the $300 a month loan payment on a financed direct purchase. Those people can afford to pay for DVC, but they probably can't afford DVC, and there is a subtle but distinct difference. What DVD is actually doing is encouraging people to make unsound and risky financial decisions that frequently end poorly. But that's not their fault. The responsibility falls on the buyer to make a disciplined decision. Unfortunately, as Americans, financial discipline is not one of our cultural strong points.

 

[DVCMomBLT]

Don't forget inflation. A $79 opening price for SSR in 2004 would be the equivalent of $96.41 in 2013 dollars. So for that resort, at current resale exchange prices ($75), it has dropped over twenty percent of its' inflation-adjusted value in the first eleven years of operation.

Look further back at OKW. It opened at $51 in 1991. Adjusting that price to 2013 dollars would give you $85.95 as the inflation-adjusted cost of OKW at opening. So OKW currently reselling at $70 is retaining slightly more of its' original value than SSR, even though it expires much sooner.

I agree with the basic premise that purchasing DVC, even direct for a new resort, saves money over paying cash for a reservation at the accompanying deluxe resort. That point is obvious to most everyone, or there would be no market for DVC in its' current form.

But where the debate starts to go off the tracks, is when someone tries to say that a resort purchased ten or twenty years ago at the same nominal dollar value as it resells today hasn't lost money. The TVM calculations go a step further down this road.

Never forget as a basis, that a dollar today doesn't buy what it did in 1990 or 2000, or you can make some pretty specious arguments.

That's all true, but that isn't the real problem with his example. He accounts for TVM by assuming a 5% opportunity cost and adds that as an expense. The problem is, he completely ignores the initial purchase price. It's like buying a car and only counting the interest and gas as an expense.

 

[ELMC]

As far as buying a car with cash, I think that is a bit far fetched. Of course in a perfect world that would be great to never have a car payment. And of course you should buy a car that you can afford. But paying cash for a reliable car upfront is not really an option for most people. I know only a couple people that have gone and paid cash for a car. I know it happens but not many people can drop that kind of money on a new car every few years in cash. I may be in the minority here though.

I think it would be helpful for you to change some of your preconceptions here. Buying a car with cash is not far fetched and it is possible...for just about everyone. I have a friend who does not make a great living. Nice guy, just doesn't earn a lot. Every car he has owned for the past 10 years has been bought with cash. He consistently saves money every month and when his current car dies, he buys a new one. His average cost per month for his car works out to less than $50. Buying a reliable car with cash (whether it be new or preowned) is an option for most people. And for those for whom it isn't, it is quite likely due to the financial decisions they have made in other aspects of their lives.

Here's the thing...it's not a perfect world scenario to not have a car payment. The problem is that we are so eager to buy things on credit that we accept it as a norm. I used to be that way, and had every kind of consumer debt imaginable. It took a complete change in thinking to get me to behave in a different manner when it came to money. That included saying no to a lot of things that I wanted.

 

[chitwndan]

Two things this discussion has made me think about - socking investment money into a 401K or a bank savings/CD are not the only alternatives, you could have put 10% into your tax deferred account and 5% into a regular investment portfolio - more risk than a savings account or hiding money under the mattress, of course, but also more potential gain. You also might benefit from the capital gains tax rate when you liquidate from the non tax deferred investments.

The second point is that when you repay that loan from your 401k you will be paying principle and interest with dollars you pay taxes on - so doesn't your true lost opportunity cost need to include the cost of the taxes on the dollars you are using to repay the loan with? And, to add insult to injury, you will of course have to pay tax on those dollars again when you retire and start withdrawing from your 401k. I suppose the significance of the hit depends on the tax bracket and thus would be less for someone in a lower tax bracket v. someone in a higher bracket.

You are right on both counts. On the 1st point it is something I will be doing moving forward, at that time I probably wouldn't have saved it if it got into my hands.

As to the 2nd point I hadn't considered that I'll have ~ 1700 in my account paid with after tax dollars so a loss of about 400-500 using napkin math. It doesn't change the big picture number greatly, but it is a cost to take into account, thanks.

I don't think I can add to much more to the discussion. I definitely stand by my decision and premise. Dean and I respectively disagree on a few points. But I feel we agree that at the end of the day you need to be careful when taking on the additional risk of having debt, and the way to be the most careful is to not take on any debt.

 

[Dean]

As far as buying a car with cash, I think that is a bit far fetched. Of course in a perfect world that would be great to never have a car payment. And of course you should buy a car that you can afford. But paying cash for a reliable car upfront is not really an option for most people. I know only a couple people that have gone and paid cash for a car. I know it happens but not many people can drop that kind of money on a new car every few years in cash. I may be in the minority here though.

Unfortunately you're likely not in the minority, that's why I said normal is broke. I don't feel it's far fetched at all but it might mean driving a clunker for a few years until one can get ahead of the curve. Obviously there are gradients here, some make worse decisions than others.

Also, Dean, you said to think of this when someone is having to sell due to bankruptcy or losing a job. Even if you paid for your DVC in cash, if you lose your job most people would probably have to sell. Not many people are so well off that they can own DVC points AND not work. That isn't a fair argument in my opinion.

I don't agree. If one has no debt's at all other than a reasonable mortgage AND an appropriate emergency fund, one will not have to sell right away or likely at all and if they did it would be by choice more than necessity. Obviously it depends on specifics but as a minimum one would be in a much better position than the other.