OKW $15 option analysis

[gblast123]

In quickly reading the prior entry’s, I didn’t spot anyone with an economic analysis of the resale value on people who opt in vs. people who opt. out.
Rather than divert this very lively and informative thread, I will make this post and also start a new thread.
Assumptions for analysis
I. OKW 200 pt. contract
Currently, most of the listings for OKW on the TSS site show prices in the $75+ range. So, for the sake of argument, let us assume that you can now either buy or sell your timeshare for $75 per point.
Let us also assume that you own 200 points. Currently, that would establish a "value" of $15,000.00 (200 x $75)
Let us compare this with resale of SSR on the TSS website. ( I know that SSR ends a few years earlier than OKW with the 15 yr. extension but let us save that for later)
II. SSR 200 pt. contract
As to Saratoga, prices are in the $82+ range. Currently that you establish SSR for $16,400
III. OKW with extension
If you choose to buy OKW and buy the extension (OKW-E), it would cost you approx. $90 per point ($15 + $75) right now or a total of $18,000. ($15,000 + $3,000)
IV. OKW + buy 40 additional points
$3000 would buy you (if available) a 40 pt. contract that you could use right now and have a total of 240 OKW points that you could use right away. (OKW 240) (total cost would be $18,000)
V. Additional assumptions
This is a right now or within 5-7 year period. Please try to stay away from subjective parameters like which resort is nicer, bigger, older, newer, and things like maintenance, etc. I am trying to see what the resale market would be if you were the buyer under these scenarios. Also, please try to ignore the opportunity cost of using the money for something else. Also, ignore the 3 year difference in the expiration date of SSR and OKW-E. Although there is one effect that would have some relevance, ie it is much cheaper in points to stay at OKW for most nights compared with SSR, which I invite comment on.
Thus, we need to analyze the comparative resale value of OKW-E with OKW, SSR, and OKW240.
VI.Questions for analysis
1) Will the value of OKW contract go up or down or stay where they are?
2) What do you think the resale price of a OKW-E contract will be?
3) Would you rather buy additional points or extend your current contract?
My short analysis of this is
1) Current resale values of OKW contracts will drop by at least a few dollars right now and will drop a lot more after Feb. 29th.
2) OKW-E resale prices will be higher than $76 but will not exceed the price of SSR
3) I would rather have an additional 40 points right now which I could rent or use now rather than pay for the extension.
My opinion (for what little it is worth)
Why? Well, SSR is currently being heavily marketed by Disney. Everyone hears about it when they come to the park. This marketing increases demand, obviously, so between OKW-E and SSR, SSR is being promoted. I don’t think that anyone will pay more for an OKW-E resale vs. SSR. Also, I spoke with 2 different resale reps, and both agreed with that assessment.
Bearing that in mind, if you can get an OKW-E contract for about $82, what would you pay for a normal OKW contract? Certainly a less than $75.00, more in the range of about $70-73.
If I decided that I would use the extra $3000.00 to enjoy DVC more, I would buy an additional 40 points. I could always rent those extra points for $400 per year and get a total of about $240 per year income, which would be about 8% per year return on my money or just go for longer vacations.
Please feel free to let me know what you think

 

[chips]

Will Disney offer extensions on all contracts and then abandon rofr on all non extended contracts? We own bcv and have seen sellers agree to 82 a point with rofr at 88 90. BCV used to be 94 95. Why couldn't it go to 80? I really do feel rofr effects the market.

Some people might argue bcv is popular and the window will help the value of the property. I felt it had more value when reserving wlv was easier on shorter notice.

 

[gblast123]

Chips,

I tried to find that out from my DVC rep and he said that nobody knows for sure what will happen with the other resorts.

However, there has been a less than enthusiatic response regarding the current OKW "offer".

 

[salmoneous]

Nice analysis. I've got one quibble. If people are willing to pay $75/point for OKW today, I don't see why they would no longer be willing to pay $75/point due to this extension program. I don't see resale prices for OKW-2042 moving much.

 

[BWV Dreamin]

In quickly reading the prior entry’s, I didn’t spot anyone with an economic analysis of the resale value on people who opt in vs. people who opt. out.
Rather than divert this very lively and informative thread, I will make this post and also start a new thread.
Assumptions for analysis
I. OKW 200 pt. contract
Currently, most of the listings for OKW on the TSS site show prices in the $75+ range. So, for the sake of argument, let us assume that you can now either buy or sell your timeshare for $75 per point.
Let us also assume that you own 200 points. Currently, that would establish a "value" of $15,000.00 (200 x $75)
Let us compare this with resale of SSR on the TSS website. ( I know that SSR ends a few years earlier than OKW with the 15 yr. extension but let us save that for later)
II. SSR 200 pt. contract
As to Saratoga, prices are in the $82+ range. Currently that you establish SSR for $16,400
III. OKW with extension
If you choose to buy OKW and buy the extension (OKW-E), it would cost you approx. $90 per point ($15 + $75) right now or a total of $18,000. ($15,000 + $3,000)
IV. OKW + buy 40 additional points
$3000 would buy you (if available) a 40 pt. contract that you could use right now and have a total of 240 OKW points that you could use right away. (OKW 240) (total cost would be $18,000)
V. Additional assumptions
This is a right now or within 5-7 year period. Please try to stay away from subjective parameters like which resort is nicer, bigger, older, newer, and things like maintenance, etc. I am trying to see what the resale market would be if you were the buyer under these scenarios. Also, please try to ignore the opportunity cost of using the money for something else. Also, ignore the 3 year difference in the expiration date of SSR and OKW-E. Although there is one effect that would have some relevance, ie it is much cheaper in points to stay at OKW for most nights compared with SSR, which I invite comment on.
Thus, we need to analyze the comparative resale value of OKW-E with OKW, SSR, and OKW240.
VI.Questions for analysis
1) Will the value of OKW contract go up or down or stay where they are?
2) What do you think the resale price of a OKW-E contract will be?
3) Would you rather buy additional points or extend your current contract?
My short analysis of this is
1) Current resale values of OKW contracts will drop by at least a few dollars right now and will drop a lot more after Feb. 29th.
2) OKW-E resale prices will be higher than $76 but will not exceed the price of SSR
3) I would rather have an additional 40 points right now which I could rent or use now rather than pay for the extension.
My opinion (for what little it is worth)
Why? Well, SSR is currently being heavily marketed by Disney. Everyone hears about it when they come to the park. This marketing increases demand, obviously, so between OKW-E and SSR, SSR is being promoted. I don’t think that anyone will pay more for an OKW-E resale vs. SSR. Also, I spoke with 2 different resale reps, and both agreed with that assessment.
Bearing that in mind, if you can get an OKW-E contract for about $82, what would you pay for a normal OKW contract? Certainly a less than $75.00, more in the range of about $70-73.
If I decided that I would use the extra $3000.00 to enjoy DVC more, I would buy an additional 40 points. I could always rent those extra points for $400 per year and get a total of about $240 per year income, which would be about 8% per year return on my money or just go for longer vacations.
Please feel free to let me know what you think

Nice analysis. Well, I don't know how often Disney raises their prices for all the resorts, but my feeling is they will gradually increase the sales price for the extended OKW. Right now, VB and HHI are the lowest priced at $92.00/pt. I can see OKW(non-extended) falling to these levels. And I can see all three of these falling off or not increasing. As the newer resorts are opened, they will command a higher price, thus leaving room for the other resorts to be increased from the current prices of $98 and $101/pt. As far as the resale brokers go, as Disney increases their prices, the resale market will follow suit. (Sure wished I majored in Economics!) Disney will drive the price of the OKW-E up, one way or another.

 

[rsinj]

.

 

[chalee94]

If DVC is charging $96 for OKW+E and the E is going to cost $25 after March 1, then OKW-E should sell for no more than $71 as of March 1 and probably a little less. If price is the same between resale and DVC, most everyone will go with DVC.

your math is reasonable enough but that's just not how market prices are set in an economic sense.

if there is a significant portion of the market that wants OKW-42 but doesn't place much value at all on the "E" (as is true of many current OKW owners on the DIS who don't anticipate needing OKW past 2042), they may decide they are perfectly willing to continue paying $75-ish to get access to a WDW resort for the next 30+ years. and if demand is there at mid-70s price levels, i'm not sure why sellers would ask for less than that...

 

[gblast123]

As I stated in the analysis, I don't believe that an extended OKW contract will sell for more than SSR's. If that is true, then how much less will a non-extended OKW go for? For example:

You have a choice of two OKW contracts, one for $75 and another for $82 with an additional 15 years. Which would you buy? I would pay the extra $7 per point for the extended one. Ergo, if I was a seller, I would have to sell my points for a bigger difference in price. I am guesstimating about a $10 difference in price would push me towards the shorter contract. That would mean that the OKW contract should be priced at about $72.

If people think that a non-extened OKW contract should be worth between $15 and $25 less than an extended one, then the non-extended contracts would go for $82-$15..=$67!!!! That would be a best case scenario!!!

The bigger the contract you have, the more the price differential would come into play.

 

[rsinj]

.

 

[salmoneous]

You have a choice of two OKW contracts, one for $75 and another for $82 with an additional 15 years. Which would you buy?

Me? I'd pay $75. And you would prefer the $82 one.

Ergo, if I was a seller, I would have to sell my points for a bigger difference in price. I am guesstimating about a $10 difference in price would push me towards the shorter contract. That would mean that the OKW contract should be priced at about $72.

Now you've lost me. I'm still willing to pay $75 for that 2042 contract. Why would a seller *lower* their price?

Look at it this way: I'm willing to pay $75 for 2042 contract, and $79 for a 2057 contract. You are willing to pay $82 for a 2057 and $72 for a 2042 contract. Assuming there are lots of people just like us (and no one in-between), then 2042 contracts will sell for $75, and 2057 contracts will sell for $82. Sellers are going to charge the highest price they can get.

Right now there are lots of people willing to pay $75 for 2042 contracts. They aren't going away. Sellers won't price their contract by figuring out what price they "should" charge for the contract. They price it to get as much money as they can. Unless something changes to get rid of folks willing to pay $75, the price won't go down.

 

[gblast123]

Right now there are lots of people willing to pay $75 for 2042 contracts. They aren't going away. Sellers won't price their contract by figuring out what price they "should" charge for the contract. They price it to get as much money as they can. Unless something changes to get rid of folks willing to pay $75, the price won't go down.

Salmoneous, you have put your clever finger right on the button. I am very glad you decided to join this discussion!!!

Many people seem to feel that if they pay $15 to extend, they will get their money back in a resale. Clearly, they won't get $90. At most, they will get around $82 (assuming equal value to SSR).

How many people will be satisfied with selling their timeshare for an additional $7 difference per point price for 15 additional years?

I think that most buyers at will pay the additional $7 to get something that is "worth $15/$25" extra. At least that would be my sales pitch as a seller. As a buyer, it is very attactive to pay $0.50 per year for an extra 15 years worth of use considering that you are paying over $2 per year for the first 35 years of usage.

As soon as some distressed sellers get on the market after paying the extra $15, we should get some more definite answers

What makes the analysis more interesting is if you compared extending against buying 40 extra points. Then, if you had a choice of buying a 35 year contract with 240 points or an extended 200 point contract, which would you choose? For me, I would buy the 240 without hesitation at $75.

More comments please. and thank you for your posts

 

[mikesmom]

As a buyer, it is very attactive to pay $0.50 per year for an extra 15 years worth of use considering that you are paying over $2 per year for the first 35 years of usage.

That's the argument DH gave me last night when I showed him the offering before (I thought) I was going to throw it out! I am firmly in the "not worth it" camp and I was so convinced that DH would be also that I would have tossed the thing except for the fact that we have to sign off on it.

Now here's the interesting thing - DH is an economist. A genuine, nationally respected, PhD, gives seminars to financial professionals (and gets paid for it), economist. He crunched numbers with a vengeance when we bought in and I have the spreadsheets to prove it! He somehow thinks there is economic value here, but I sure can't see it.

On the other hand, we JUST got back from a stellar vacation with DD and her husband at BWV. They live in Seattle so we don't often get quality time with them. He may be feeling a little partial, so I think I will just sit on this a while.

 

[rsinj]

.

 

[jctwizzer]

Probably just me, but that's appears to be paralysis from analysis, and extreme overkill, for a $3000 expenditure.

 

[Debbie H]

Keep hoping - it isn't going to happen, and if it does, it isn't going to happen for a while. People who cannot afford the $15/point are not going to be buying. When they do come up for resale, you are going to see very few of them because people who are buying the extensions now, are doing so with the intent of getting use out of those 15 extra years.

Don't kid yourself, that will happen sooner than you think. SSR was barely open and people were selling. People get caught up in Disney mode and buy, then they get home and reality sets in a few months later when they have another mortgage to pay, or a large credit card bill that they can't pay, kids need braces, hubby lost his job, etc.

I think a lot of people don't want to spend money on something they can't use for another 35 years. At least buying in a newer resort now, you can use it now and for the next 50 years.

 

[rsinj]

.

 

[gblast123]

Very interesting and useful comments by all.

RSINI - I think that there are always people who make financial mistakes and have to sell what they have at that time. I believe that you will be right for the short term (3-6 months), with very few OKW-E up for sale. However, after that time period, I think that these will start to hit the market, for several reasons. A) The current real estate boom seems to be bottoming out in several parts of the country. Some people who opt for the extension and get the Disney financing will have to sell and they will have to pay off the financing. B) Some will hit the market due to death, divorce, legal difficulties and C) Some people who procrastinate and don't send the paperwork in by the deadline will be hit with a $25 per point assessment. They will have to sell unless they want to pony up a lot of extra money.

 

[OKW Mom]

Chips,

I tried to find that out from my DVC rep and he said that nobody knows for sure what will happen with the other resorts.

However, there has been a less than enthusiatic response regarding the current OKW "offer".

For me and my husband we'll be almost 90 years old if we get the extension. I can't see paying more now when I don't know what shape they'll be in by 2020.

Anybody seen it from that point?

 

[jekjones1558]

Thank you for posting this analysis. It is food for thought. I don't see us adding the years. If we need to sell we will just have to hope that there will be a buyer out there for whom the cheaper contract will be attractive. In the meantime we will enjoy the 11 window for GVs at OKW.

 

[gblast123]

Happy to be of any assistance!

Question to all - if you had a choice of buying a 240 non-extended OKW contract and an extended 200 pt OKW contract at the same price, which would you choose?