On The Fence - Need a Spotter for My Math

[Audray]

I've come up with the following (perhaps flawed) logic... Can someone tell me why my math doesn't work.

Example 1: Buy 250 points at BLT direct from Disney at $115 per point. So the purchase price is $28,750, for which you receive a total of 12,500 points (50 years x 250 points). You have annual maintenance of $3.78 per point, or $47,250 (50 years x 250 points x $3.78). Assuming for the sake of this comparison and simplicity that maintenance fees never go up; you get a total cost of $76,000 for 12,500 points, which works to approx. $6.08 per point.

Example 2: Buy 250 points at SSR via resale at $70 per point. The purchase price is $17,500, for which you receive a total of 11,000 points (44 years x 250 points). You have annual maintanence (same assumption as Example 1) of $4.46 per point, or $49,060 (44 years x 250 points x $4.46). You get a total cost of $66,560 for 11,000 points, which works to approx. $6.05 per point.

A weakness is the assumption that the maintenance fees are a constant. Of course they will increase, but if they increase at the same percentage, I think the math still works (of course this disregards the fact that $4.46 growing at 4% has a larger impact than $3.78 growing at the same 4%) (but you will have an additional 6 years of compounding for the BLT compounding to catch the SSR).

So aside from my maintenance fee weakness, the real difference is $0.03. Compounded into the calculation is duration of term (and thus additional points), so the real benefit associated with paying the extra $0.03 per point is the ability to reserve 11 months in advance for BLT instead of SSR offset by the additional commitment in terms of over number of points purchased.

I've often seen SSR being regarded as a real value in the resale market, but am having a hard time truely reconciling that. In our case, we know we want to stay at BLT; but I believe that if my math is right, the actual benefit of buying a SSR resale and hoping for availability when the 7 month window opens is nominal on a cost per point basis. In this case isn't it really $0.03 per point for the 11,000 SSR points you would be purchasing - or $330.

 

[chalee94]

it's a time value of money issue. what rate are you using to value how much more a dollar today is worth to you than a dollar in 30 years?

if you prefer to stay at BLT, it might be a better deal over time. but for most people, there's a huge difference between being out $10,000 tomorrow and being out $10,000 over the next 40 years...

 

[jlewisinsyr]

Here's an example in numbers, including escalating dues at 3% annually:

As the PP mentioned there's value in time as well, and you're also assuming you're keeping it for the life on the contract, which I doubt in the end there will be many people who choose this route, most will probably sell well before the contract end date.

If you want to stay in BLT, especially if you want a MK or larger size room, as at the 7 Month mark, these types of rooms may become hard to get if you don't retain the booking advantage.

 

[Audray]

But isn't the impact of the time value of money the same in either example? You still have a large initial outlay for both, but wouldn't the impact be similar for both examples. I had considered the TVM issue being related to whether or not it makes sense to do DVC at all, not as much when considering two different purchase options. That being said, there is a greater impact due to the differences in the durations.

 

[Audray]

Thanks jlewisinsyr, so that $0.21 per point difference is really what I should be conisdering right? Is the $2,310 worth knowing that I have a better shot at staying where I want over the next 44 years.

 

[mydogdrew]

This is a common view to justify BLT over SSR and if it works for you that's great. However, you should carefully consider what those points 45 years from now are worth today. I would argue not much at all.

If you value BLT over SSR then it is worth a premium. If not, you are paying an extra $12k that yields no benefit for a very long time (opportunity cost).

If you were contracting to rent a DVC vacation today to use in 50 years what would you pay per point now? $1 ppt? less?

My recommendation is you value the points you will receive over the term by their relative value today (like discounting cash flows).

 

[jlewisinsyr]

But isn't the impact of the time value of money the same in either example? You still have a large initial outlay for both, but wouldn't the impact be similar for both examples. I had considered the TVM issue being related to whether or not it makes sense to do DVC at all, not as much when considering two different purchase options. That being said, there is a greater impact due to the differences in the durations.

The TVM is about spending the difference of about $11,000 now versus down the road (BLT versus SSR Resale). How much could that $11,000 earn over the course of time at a nominal interest rate and paying off some of the variances.

Example, if you buy SSR and saved the $11,000 in an investment tool earning 4%, you could pay the dues on SSR for 10 years without making any additional outlay in cash, meanwhile you would have needed to pay out another $10,000 at BLT for dues.

 

[Mickey'sApprentice]

You should also consider the fact that you could be investing the extra $11,000 that you will be paying for BLT. If you are financing, then you should also consider the extra finance fees as well.

IMHO, I would not finance $28k for a luxury purchase.

Unless you plan to always stay at OKW regardless, you need to look at the point differences between SSR and BLT.

 

[Audray]

Thanks everyone, there were some great points brought up that I was aware of in terms of existance - but not in terms of financial impact. I can see why this is a topic of debate, and one that will probably be a topic of debate for some time.

I agree, we wouldn't finance a purchase of a DVC. But the value of the $11K additional upfront as well as the value of the points in years 45-50 certainly are very real in terms of a comprehensive evaluation.

BTW, I wish some of you worked in our Finance Department...

 

[jlewisinsyr]

BTW, I wish some of you worked in our Finance Department...

I already have a finance job, thank you...

 

[crisi]

One thing to be aware of is that during the sales cycle, dues are usually estimated quite low. Although BLT has very low dues compartively now, it wouldn't surprise me if the dues are significantly higher once the resort gets closer to being sold out - more in line with VWL.... Its DVCs first high rise, so its hard to estimate where they are going to fall, but I'd put my money down on three years from now they'll be higher.

 

[shortypots]

I think the reason they are so low at BLT is because they require so many more points to stay there. So I would imagine the MF's to remain at the 3-5% increase level. Although they do have some subsidy in there from the developer, but I wouldn't expect drastic increases.

 

[lugnut33]

One thing to be aware of is that during the sales cycle, dues are usually estimated quite low. Although BLT has very low dues compartively now, it wouldn't surprise me if the dues are significantly higher once the resort gets closer to being sold out - more in line with VWL.... Its DVCs first high rise, so its hard to estimate where they are going to fall, but I'd put my money down on three years from now they'll be higher.

Isn't BLT also responsible for some Monorail costs going forward?

 

[backyardponder]

If you are looking to book at the 11 month window, you also need to consider the number of points to stay at a particular resort. For the Magic Season, BLT 1BR is between 272 and 361 points. SSR is 242. I have no idea how to factor that into your numbers but it could be significant.

Bottom line, as many will advise: Buy where you want to stay the most.

 

[wdrl]

I think the reason they are so low at BLT is because they require so many more points to stay there. So I would imagine the MF's to remain at the 3-5% increase level. Although they do have some subsidy in there from the developer, but I wouldn't expect drastic increases.

As of 2010, BLT is not receiving any subsidy from the developer (see http://www.dvcnews.com/index.php/dvc-program/financial/2010-resort-budgets). In 2009, BLT did receive a subsidy from DVD of $0.0506 per point, but that subsidy has ended.

 

[sweetdana]

1 more note is the cost per room. 1 night at BLT is not = to 1 night at SSR. Depending on when your going (IE christmas week, or july 4th) could make a BIG difference.
It is unlikely BLT will not increase at a higher level after more sales have happen. All the resorts have maint fees increased, as the 1st year or 2, there is super low maintence. No need to refurb a pool build 6 months ago, or replace a kitchen table or dryer from 3 months ago. It is all new and maint fees reflect this. It is known that there will be LITTLE to no replacements (not under waren. ) for years.
In the end BLT should have lower Main fees as the rooms have a higher point per night than others like SSR, AK, OKW ect. But NO WAY in the end is it really 3 cents diff. The costs are split over more points. .. As well if you go 7 days every sept you will need more points at BLT then SSR.

 

[Sandisw]

If you are looking to book at the 11 month window, you also need to consider the number of points to stay at a particular resort. For the Magic Season, BLT 1BR is between 272 and 361 points. SSR is 242. I have no idea how to factor that into your numbers but it could be significant.

Bottom line, as many will advise: Buy where you want to stay the most.

But another thing to consider in point differences is that the 1 bedrrom at BLT sleeps 5 while the 1 bedroom (for now) at SSR only sleeps 4. Someone would need to go to a 2 bedroom at SSR (if they want real bedding for all 5). This could make a difference in the points situation as a 2 bedroom at SSR is 318, which puts that in the middle of the two making it possible to stay at BLT for less than you could at SSR if you have a party of 5. So, it is not always as simple as BLT takes a lot more points as peoples travel patterns can make thta untrue.

Matter of fact, for my summer trips, the points it will cost me at BLT is the same as VWL and BWV (preferred) and only 2 more points than BCV (the only other DVC resorts I would be interested in staying) for a 1 bedroom unit.

 

[bookwormde]

You really need to add the lost income for the extra $40/pt for the BLT purchase, at a safe long term interest of 4% that is $1.60/pt/year that if you just kept the extra you are paying for BLT in a long term treasury.

bookwormde

 

[Audray]

So after getting all of this wonderful feedback, here are some of my take aways;

It is possible, even perhaps likely, that the maintenance fee issue is of much greater significance than I originally considered it to be. My math was based on a premise that the fees would increase uniformly across all properties. I had not factored that the BLT fees may increase at a higher rate than the others after it was fully sold and began maturing as a property.

There is an issue with my failure to properly consider the time value of money related to the higher purchase price / initial outlay. I had been operating under the assumption that the time value issue is really of no consequence because the alternate scenario (i.e. renting rooms versus buying DVC) would involve price increases similar to what I could get with an investment (i.e. LT Treasury). So I thought that if I was certain that I (or my decendants) would be coming for the next 50 years, the TVM issue was moot. I failed to consider the issue as it relates to the purchase of SSR versus BLT.

In our case, were are fairly certain that we want to stay at BLT, so we were putting a lot of weight on the benefit of booking 11 months in advance. However, we also aren't interested in visiting during peak seasons, so perhaps we are attributing too much value in that benefit. Perhaps we should reconsider that valuation.

The one thing I do know is that there is a value, based on our assumed usage profile, to owning versus continuing to pay for hotel rooms. While I don't want to analyze this thing to death, I do want to get the most value from my investment. Hopefully at some point, I can untangle myself from the analytics and take the plunge. I'm sure that whatever decision I make, there will be times I regret it and times that I will be happy with it.

So if anyone wants to suggest the best scenario for us; please feel free. We are looking to come for eight to ten consecutive nights two out of every three years and would like to stay in a 2BR Villa, January for the next five years; and probably late August / late May or school breaks from then until the kids are in college (whenever crowds are at their lowest). Our first choice is BLT, followed by VWL and then AK. We would not be financing, regardless of initial outlay. Finally, I see us starting off at a certain point level and then adding points over time (if necessary, as needed).

 

[crisi]

In our case, were are fairly certain that we want to stay at BLT, so we were putting a lot of weight on the benefit of booking 11 months in advance. However, we also aren't interested in visiting during peak seasons, so perhaps we are attributing too much value in that benefit. Perhaps we should reconsider that valuation.

Two things to note:

Peak times for DVC are different than peak times for WDW. (ETA - and over the long term, its difficult to say when peak times will be - or when you'll travel. We bought to stay in BWV in early October - back when F&W started in mid-October. The year after we bought, F&W got pushed back and now our resort fills much quicker - the "I don't need to fret about getting a Standard View room" turned into "I'd better make an appointment on my calendar to call right when the window opens or I won't get a standard view room." But now, we don't go in October anymore - we go in August.)

Depending on what time of room you want, you have to be lucky to get some rooms at seven months at ANY time of year. BLT Standard View rooms almost certainly fall in this category. If all you want from BLT is a Lake View room, you'll probably be happy buying a cheaper contract - at least more often than not. If you want a standard view room (or a MK View room), you are going to want to own there.