Odd calculation results...is this right?

[kristenrice]

DH has mentioned the idea of travelling to HHI on a "regular" (i.e. EOY) basis. I looked at the resales, knowing that they are going fairly cheap right now. I also looked at the cash rates since we'd probably pay cash for a stay before buying in. Here's what I came up with...

Using DVC points....
1. Cost of 60 point resale contract: $4140 + $397 for closing costs
==> 60 banked 2008 points and all 2009 points available
==> This amounts to 34 years worth of points @ 60 points/year...
==> So, overall cost per point boils down to about $2.22 over the life of
the contract ($266.40 for a 120-point trip)
2. Annual Dues for 2008 ($5.16) + Annual Dues for 2009 ($5.36) = $631.20
3. This means a 120-point trip would "cost" $897.60

...So far, so good?...

Ok, now I looked at the cash cost for October 2009...
1. Saturday night in a studio with DVC discount: $165.75
2. Sunday-Tuesday nights in a 2BR with DVC discount: $484.50
3. This gives a total cash cost of $650.25 for a trip that would utilize 121
points

This begs my question of...why would I consider buying a contract when I can currently "save" almost $200 without using a single point?

Is there a huge error in my math somewhere?

 

[Tara]

My understanding is that the DVC discounted rate is not always available?

What is the rate per night for a 2br villa? I'm shocked that you can get one for $484 for 3 nights!

 

[kristenrice]

My understanding is that the DVC discounted rate is not always available?

What is the rate per night for a 2br villa? I'm shocked that you can get one for $484 for 3 nights!

I checked a Sun-Tues (3 night) stay in October 2009 on the Disney website and it showed a rate of $199 per night. So, I *assumed* a discount would be available (knowing that it is not a guarantee) and that is where I came up with that figure. A Saturday night studio in October was $195.

I was shocked to see those rates too which is what led me to do the "cost" breakdown using points. If these numbers are correct, it would seem silly for us to even think about an add-on when the cash rate is cheaper. (*assuming the discount is available*)

OK, NOW it makes sense...

Obviously there was a hiccup in my computer! I couldn't believe a 2BR was that cheap! (I know it came up as a 2BR because I put an occupancy of 6 adults so a studio or 1BR would not even be an option!) I just rechecked it again and now the correct price comes up....$277 per night before any discount or taxes. This makes more sense. Now, the same stay is $858, which is still more "expensive" than using points. If these numbers are right (finally), I would conclude that if the discount is available, it would make more sense to pay cash than to use points.

 

[Dean]

There are additional risks to owning so you should factor that in. There is also lost earnings on the dollars spent though likely not that much in your situation. There are other options. You could buy one of the Marriott's there for around that price and get a 2 BR for a full week. Higher dues but EY and a full 7 days in an ocean front resort. You could buy a Marriott to trade andlikely be even less on cost. You could buy an RCI points account J(and or weeks account) and try to trade in to DVC there are at WDW.

 

[Mississippian]

DH has mentioned the idea of travelling to HHI on a "regular" (i.e. EOY) basis. I looked at the resales, knowing that they are going fairly cheap right now. I also looked at the cash rates since we'd probably pay cash for a stay before buying in. Here's what I came up with...

Using DVC points....
1. Cost of 60 point resale contract: $4140 + $397 for closing costs
==> 60 banked 2008 points and all 2009 points available
==> This amounts to 34 years worth of points @ 60 points/year...
==> So, overall cost per point boils down to about $2.22 over the life of
the contract ($266.40 for a 120-point trip)
2. Annual Dues for 2008 ($5.16) + Annual Dues for 2009 ($5.36) = $631.20
3. This means a 120-point trip would "cost" $897.60

...So far, so good?...

Ok, now I looked at the cash cost for October 2009...
1. Saturday night in a studio with DVC discount: $165.75
2. Sunday-Tuesday nights in a 2BR with DVC discount: $484.50
3. This gives a total cash cost of $650.25 for a trip that would utilize 121
points

This begs my question of...why would I consider buying a contract when I can currently "save" almost $200 without using a single point?

Is there a huge error in my math somewhere?

First, you can't be sure of getting something in the rental market. Studios are especially hard to come by at HHI, and so the cash discount is not always available.

Second, although virtually everyone calculates the cost of point loss at 1/34the purchase price of the points each year, this is totally wrong. Since you maintain the use of the points for 34 years, you should calculate the decline in value as the present value of a $2.22 loss 34 years hence. Depending on the interest factor you use, this comes out to five to 25 cents, not $2.22.

I was taught in college that in calculating the value of a bond that the corpus should be completely ignored if the bond has more than 30 years to maturity. The value in the bond is in the annual benefits, i.e. interest, not in the eventual return of the corpus. The same is true of DVC memberships.

When these contracts get down to where they have 25 or fewer years the annual loss of years will start to have more impact. Of course, I expect the buying public to grossly overestimate the importance of the fewer years, thus causing these contracts to eventually sell at a tremendous discount.

Please note that while you should not calculate the loss of points 34 years hence as a loss today, you should calculate the interest cost on your money. At five percent, this comes to an expense of $207 per year.

So you would save by getting a cash discount on your rooms, assuming you could be ssure of being able to get them, which is by no means certain. You would not enjoy the hedge on inflation that DVC membership offers, so your savings might be temporary.