Please explain this to me like I am 5 years old.

[disneynutz]

Rather than debating the numbers, if you want to vacation yearly at Disney and you want a DVC room then buy a DVC contract.

If you want to vacation at Disney less often and you want to stay in a DVC room then rent a reservation from an owner.

Bill

 

[Millionaire2K]

Rather than debating the numbers, if you want to vacation yearly at Disney and you want a DVC room then buy a DVC contract.

If you want to vacation at Disney less often and you want to stay in a DVC room then rent a reservation from an owner.

Bill

Exactly. I know that it is much cheaper for me to be a DVC member vs paying the $2300 I HAVE paid to stay at AK for 8 nights.

Keep things simple people. Of course if you invest or don't go to Disney at all and never buy a new TV or a new car you will have more money in 40 years

 

[Dean]

We've been through the time-value-of-money many times. I still argue that it's irrelevant; or, rather, it's already figured in.

The time value of money accounts for inflation risk. By pricing this in today's dollars, you're dealing with the net present value of the future value (and cost) of those future points. Those points cost $2 in today's dollars. That money would obviously grow, at roughly the same rate as the value of those points in future years.

Most people on these boards, when they throw around the time-value-of-money phrase, actually mean "opportunity cost." The idea that you could invest the money at a greater rate of return. Yes, you would, and the money would grow, and you could dip into it to fund vacations. If it grows at a higher rate than inflation, you'd come out ahead, in theory.

But, all the calculations, especially when we discuss 4-12 year ROI's, ignore the asset value of the real estate contract. True, the asset will reach zero at the end of its term, but should grow in the near term. This is, essentially, a complex annuity structure with an up-front cost, inflation-adjusted annual contributions (maintenance fees), and an inflation-adjusted payout in the form of lodging. When you recognize it for what it is, and calculate it in those terms, it's pretty easy to reach a favorable ROI, especially in a relatively liquid investment.

The return on money invested appropriately should outpace inflation, the numbers depend on the assumptions. Plus dues will go up yearly and historically for timeshares, irregardless of what general inflation does. I do not believe it reasonable to expect a contract bought today resale to increase in value, I believe one should expect it to decrease with minor fluctuations over time.

Not to get too technical but since you brought it up.

Definition of 'Time Value of Money - TVM'

The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.

Definition of 'Opportunity Cost'

1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.

2. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%).

I believe TMV far more appropriate to the discussion since we're talking an investment reduced by a yearly expense compared to a large up front expense coupled with a long term commitment. YMMV.

Rather than debating the numbers, if you want to vacation yearly at Disney and you want a DVC room then buy a DVC contract.

If you want to vacation at Disney less often and you want to stay in a DVC room then rent a reservation from an owner.

Bill

Bill, as you've seen me say before, it's foolish to buy in if the numbers don't first make sense. To know that one has to compare to past and/or future possible costs and make certain assumptions and actually run some numbers. There are many people that want to go to WDW and stay on property and there are many that want to stay off property, many actually prefer off property. Everyone has to weigh the variables and decide for themselves but that doesn't mean that every decision someone makes will be a good or reasonable one. Case in point, while I'm an owner I rarely use my points for personal stays and yet have vacationed at WDW many times in the last 10-12 years not using my points. I think your statement is true for some but not for many partly because there are other variables, partly because it really doesn't make sense overall for many and partly because many can't afford it (unfortunately including many who buy in).

 

[Missyrose]

they actually did change this BTW:

http://dvcnews.com/index.php/dvc-program-51703/policies-a-procedures-46504/news-83631/2520-wdw-hotels-added-to-the-disney-collection

Oops! I missed that update. Sorry for spreading outdated info!

 

[Millionaire2K]

i agree with crisi that this is problematic. you are either dipping into that $8000 each year to pay for room costs onsite at wdw (in which case it will disappear in only a handful of years) or else you are using money that you ought to be saving to buy into DVC. "vacation spending" and "savings" should be separate buckets.



this is simple and fine up to a point. but it does ignore the time value of money...you are not really paying $2 per year per pt and every dollar upfront "hurts" considerably more than a dollar you pay in annual dues in 2030. (if it doesn't, i will happily borrow piles of money from you and pay it back at par in 2030.) so you really should be weighting that initial purchase more heavily...

Again for 100 points I can stay at AK for 8 nights each oct. Clearly if someone stay at pop or offsite for those same 8 nights each OCT the numbers would not work for them. Heck some people drop $10,000 on a single trip living it up like there's no tomorrow. It's all relative.

If paying cash for the next 5 years for that room it would cost me more then $8000. So I don't care what the points cost in the future as I didn't buy them in the future. I would have lost all $8000 by 2020 paying cash. Then I would get 0 points for 40 more years.

When paying cash or DVC at WDW it's all the same. I"M GETTING A GREAT VACATION. Adding talk of long term savings into the mix is stupid when you would have used up all the saving in 5 years paying cash.

 

[Dean]

When paying cash or DVC at WDW it's all the same. I"M GETTING A GREAT VACATION. Adding talk of long term savings into the mix is stupid when you would have used up all the saving in 5 years paying cash.

You're limiting to one potential option where there are many. Just thinking of DVC alone one could look at CRO with or without discounts, renting from a member, renting from a clearing house like David's, renting from an RCI owner, trading in through RCI, doing a private exchange with a member or trading in through one of the independent exchange companies. Each has it's risks, costs and likely success rate but all are potential options. Likely the simplest is owning vs renting from another member but the most accurate is compared to what one would have spent without owning DVC. If that would be cash through CRO, I'd agree it's a no brainer if one can afford it anyway. I know I've had maybe close to 40 villas through RCI and II over the years all 1 & 2 BR. Direct cost in the $350-450 per villa historically current around $650 per villa including exchange fee, resort services fee and underling cost of item exchanged to illustrate there are alternatives.

 

[mdinme]

Not sure if we're accomplishing much, but since ive read every post I figured id chime in. When we bought 100 at saratoga in 2013 I knew we were getting 4040 points over the life of the contract (it had 40 banked). The resale tab was 6500. I estimated a cost of 600 for dues for the duration so another 24000 added to our 6500 (4.91 this year) Total is now 30500. When I divide by 40 years I get 762.50 or $7.63 per point. I rented dvc for $9pp in 2010. Rented points for a pal this year at $12. Over the next 40 years i suspect the average pp to rent will hit double my $7.63.

Im happy that we bought. Havent seen Saratoga, too busy loving BCV!

 

[chitwndan]

The return on money invested appropriately should outpace inflation, the numbers depend on the assumptions. Plus dues will go up yearly and historically for timeshares, irregardless of what general inflation does.

The ROI should definitely outpace the CPI inflation of about 3%. But if it will outpace the inflation of the hotel room cost is another thing entirely.

As noted at http://micechat.com/23546-price-increases-walt-disney-world/

Poly in 2003 was $299 the same time in 2013 should be $371 but in actuality it was $562 or an 88% increase over 10 years.

Might your investment with regular withdrawals for hotel fees and contributions for annual fees outpace that? Perhaps, but hit a down market in 5-10 years and you're far better off with DVC, especially if you look at Compound Annual Growth Rate vs average rate of return.

 

[Millionaire2K]

You're limiting to one potential option where there are many. Just thinking of DVC alone one could look at CRO with or without discounts, renting from a member, renting from a clearing house like David's, renting from an RCI owner, trading in through RCI, doing a private exchange with a member or trading in through one of the independent exchange companies. Each has it's risks, costs and likely success rate but all are potential options. Likely the simplest is owning vs renting from another member but the most accurate is compared to what one would have spent without owning DVC. If that would be cash through CRO, I'd agree it's a no brainer if one can afford it anyway. I know I've had maybe close to 40 villas through RCI and II over the years all 1 & 2 BR. Direct cost in the $350-450 per villa historically current around $650 per villa including exchange fee, resort services fee and underling cost of item exchanged to illustrate there are alternatives.

I hear ya..... However,

I don't like any of these. I feel like this debate has turned into you should buy your TV from the guy that sells TV's behind Best Buy. I know it's not the same but please I like to keep things simple. Again of course at anytime anything could come along and blow every number away.

I compare $$ to what I use. I paid cash direct to Disney 36 different times b4 becoming a DVC member. Being a DVC member has saved me on the direct cash I spend on my trip. Am I saving the most? Maybe not, But I don't care. I like being a member.

The question for me is a simple "Is DVC better FOR ME then spending cash the rest of my life?" I say yes.

I also like the perks that come with being a member. I also like the nice hotels and AP discount (I know this may not last forever as its a random deal)

 

[Dean]

The ROI should definitely outpace the CPI inflation of about 3%. But if it will outpace the inflation of the hotel room cost is another thing entirely.

As noted at http://micechat.com/23546-price-increases-walt-disney-world/

Poly in 2003 was $299 the same time in 2013 should be $371 but in actuality it was $562 or an 88% increase over 10 years.

Might your investment with regular withdrawals for hotel fees and contributions for annual fees outpace that? Perhaps, but hit a down market in 5-10 years and you're far better off with DVC, especially if you look at Compound Annual Growth Rate vs average rate of return.

If prices cont to go up that fast you have choices of whether to participate or make other decisions. Also, while I don't have the base numbers, I don't think the effective rate has gone up quite that much (discounted plus tax) nor has it been a steady increase. If those prices cont at that level, DVC dues will likely increase faster than they so far as well. Plus I don't believe that rate is sustainable. Part of this represents the idea that there are risks. On one side that prices may outpace us and that buying in locks in those prices, on the other that DVC may not continue to meet an individuals needs and that dues could be the achilles heel. I realize one can make the numbers say about anything one wants thus my goal is to get those looking to buying in/add on to think about their purchase and risk and get past the hype and emotions.

I hear ya..... However,

I don't like any of these. I feel like this debate has turned into you should buy your TV from the guy that sells TV's behind Best Buy. I know it's not the same but please I like to keep things simple. Again of course at anytime anything could come along and blow every number away.

I compare $$ to what I use. I paid cash direct to Disney 36 different times b4 becoming a DVC member. Being a DVC member has saved me on the direct cash I spend on my trip. Am I saving the most? Maybe not, But I don't care. I like being a member.

The question for me is a simple "Is DVC better FOR ME then spending cash the rest of my life?" I say yes.

I also like the perks that come with being a member. I also like the nice hotels and AP discount (I know this may not last forever as its a random deal)

That's your choice but it's not the only choice and it's not the only reasonable or viable choice and we only listed ways to stay in a DVC villa. I'd be willing to be that most of those cash stays were not at DVC resorts or in suites but as I've said many times, one should compare to what they would do if not owning DVC and in your case that appears to be paying Disney's high prices. I'm also assuming that you compared to the discounted rates which would also include things like free dining currently.

 

[disneynutz]

These are still best guesses.

Using full term 30, 40, 50 years probably isn't realistic.

No one knows what the DVC sales price will be when they sell, should they sell their contract(s).

No one knows what the dues will be in the future, 3% increases or above 6% increases like BLT?

No one can guess what the economy will do in the next 30 to 50 years.

No one knows what will happen to Disney in the next 30 to 50 years.

No one knows what will happen in their personal life's tomorrow, or 30 to 50 years.

Bill

 

[skier_pete]

No one knows what will happen in their personal life's tomorrow, or 30 to 50 years.

Bill

Man - we have clearly failed to explain things like the OP is a 5-year old. Deep philosophical debates are on the way.

In simple terms as possible - as a 5-year old could get it. (Probably more like an 8-year old.)

Option 1 (Cash):
- Every day I'll sell you a candy bar for $1.
- Or you can keep your money for something else.
- After 10 days, you may have 10 candy bars and you've spent $10.
- After 20 days, you can have up to 20 candy bars, but you've spent $20.
- After 50 days, you can have up to 50 candy bars, but they will cost you $50.

Option 2 (DVC):
- If you give me $5 right now, then every day I'll sell you a candy bar for 50 cents.
- You HAVE to buy the candy bar every day, you can't keep the money.
- After 10 days, you have 10 candy bars and have spent $10.
- After 20 days, you now have 20 candy bars, but you've only spent $15.
- After 50 days, you've spend $30 for 50 candy bars.

Not a perfect analogy, but in simplest terms I think it works.
Option 1 sounds better if I don't really like candy bars, or maybe I want ice cream or a gobstopper one day instead. But if I LOVE candy bars? Option 2 sounds really good if I can come up with that $5!

 

[lovin'fl]

Man - we have clearly failed to explain things like the OP is a 5-year old. Deep philosophical debates are on the way.

In simple terms as possible - as a 5-year old could get it. (Probably more like an 8-year old.)

Option 1 (Cash):
- Every day I'll sell you a candy bar for $1.
- Or you can keep your money for something else.
- After 10 days, you may have 10 candy bars and you've spent $10.
- After 20 days, you can have up to 20 candy bars, but you've spent $20.
- After 50 days, you can have up to 50 candy bars, but they will cost you $50.

Option 2 (DVC):
- If you give me $5 right now, then every day I'll sell you a candy bar for 50 cents.
- You HAVE to buy the candy bar every day, you can't keep the money.
- After 10 days, you have 10 candy bars and have spent $10.
- After 20 days, you now have 20 candy bars, but you've only spent $15.
- After 50 days, you've spend $30 for 50 candy bars.

Not a perfect analogy, but in simplest terms I think it works.
Option 1 sounds better if I don't really like candy bars, or maybe I want ice cream or a gobstopper one day instead. But if I LOVE candy bars? Option 2 sounds really good if I can come up with that $5!

This is awesome!!! And I LOVE candy bars

 

[bwvBound]

Man - we have clearly failed to explain things like the OP is a 5-year old. Deep philosophical debates are on the way.

In simple terms as possible - as a 5-year old could get it. (Probably more like an 8-year old.)

Option 1 (Cash):
- Every day I'll sell you a candy bar for $1.
- Or you can keep your money for something else.
- After 10 days, you may have 10 candy bars and you've spent $10.
- After 20 days, you can have up to 20 candy bars, but you've spent $20.
- After 50 days, you can have up to 50 candy bars, but they will cost you $50.

Option 2 (DVC):
- If you give me $5 right now, then every day I'll sell you a candy bar for 50 cents.
- You HAVE to buy the candy bar every day, you can't keep the money.
- After 10 days, you have 10 candy bars and have spent $10.
- After 20 days, you now have 20 candy bars, but you've only spent $15.
- After 50 days, you've spend $30 for 50 candy bars.

Not a perfect analogy, but in simplest terms I think it works.
Option 1 sounds better if I don't really like candy bars, or maybe I want ice cream or a gobstopper one day instead. But if I LOVE candy bars? Option 2 sounds really good if I can come up with that $5!

Nice! I really like it -- thanks for putting it this way.

 

[disBOBney]

Well, when I visited Animal Kingdom Lodge and I saw the Kidani Village pool I asked an employee what it was and he said "it's the DVC pool".

I also saw a pool at Wilderness Lodge that was not the main pool and I asked about it and I was told it was the DVC pool.

Yes, DVC have pools dedicated to their use, which means when storm along bay gets crazy with guests, a DVC guest can go an relax around there private pool. They are never restricted to only use a DVC pool. So when you were being told about it being the DVC Pool that was good and welcome news, not a negative limiting detriment.

 

[disBOBney]

Quote:
Originally Posted by skier_pete View Post
Man - we have clearly failed to explain things like the OP is a 5-year old. Deep philosophical debates are on the way.

In simple terms as possible - as a 5-year old could get it. (Probably more like an 8-year old.)

Option 1 (Cash):
- Every day I'll sell you a candy bar for $1.
- Or you can keep your money for something else.
- After 10 days, you may have 10 candy bars and you've spent $10.
- After 20 days, you can have up to 20 candy bars, but you've spent $20.
- After 50 days, you can have up to 50 candy bars, but they will cost you $50.

Option 2 (DVC):
- If you give me $5 right now, then every day I'll sell you a candy bar for 50 cents.
- You HAVE to buy the candy bar every day, you can't keep the money.
- After 10 days, you have 10 candy bars and have spent $10.
- After 20 days, you now have 20 candy bars, but you've only spent $15.
- After 50 days, you've spend $30 for 50 candy bars.

Not a perfect analogy, but in simplest terms I think it works.
Option 1 sounds better if I don't really like candy bars, or maybe I want ice cream or a gobstopper one day instead. But if I LOVE candy bars? Option 2 sounds really good if I can come up with that $5!
Nice! I really like it -- thanks for putting it this way.



One thing many seem to forget is that in this example option 2 not only are you paying a $5 fee but you are receiving a deed that is required of any one who wants to be able to buy the 50 cent candy bars. The deed has value because with out it you can't buy the 50 cent candy bar. So if I get tired of buying 50 cent candy bars I can sell the deed to someone else who would like to buy 50 cent candy bars for awhile. Guess how much I am going to ask for when I sell the deed?

So my ROI was really made the very first time I used it and bought a candy bar for half price.

Are any DVC contracts selling for less today than they were on Jan 1 of this year?
It is true that not all DVC contracts are currently selling for more than when they were first offered, however many are. And of the ones that aren't they are still selling thus the actual time to break-even is much shorter than people are giving credit for.

The only way DVC is not a good value is if you really didn't want to go on vacation, because owning DVC will have you vacationing better and more often than you thought, regardless if you want to go to amusement parks, the beach, or around the world.

 

[skier_pete]

Quote:

One thing many seem to forget is that in this example option 2 not only are you paying a $5 fee but you are receiving a deed that is required of any one who wants to be able to buy the 50 cent candy bars. The deed has value because with out it you can't buy the 50 cent candy bar. So if I get tired of buying 50 cent candy bars I can sell the deed to someone else who would like to buy 50 cent candy bars for awhile. Guess how much I am going to ask for when I sell the deed?

I thought of that, but that seemed too complicated for a 5-year old. (cause then you have to start getting into that if you wait until you've bought 40 candy bars, you can only sell the deed for $2 instead of $5...etc.)

 

[disBOBney]

There is some additional analysis suggested to capture the costs over time.

If you would have invested the original $8000 at 5% in 40 years this grows to $56,320. At the end of 40 years the value goes to zero so this is really your purchase cost. This averages to $56,320/40 or $1408/year.

The maint fees also increases about 3% per year. So, over a 40 year period this is another $38,624 or another $966 per year on average.

So, your average cost per year for the 40 years is $1408+$966=$2374 (or $297 per night).

It is safe to assume that over time the cash rates will also be increasing and although I do agree eventually you come out ahead it really takes several years ... likely 8 to 10.

I'm sorry but your analysis needs some work. You are presuming that the deposited money is never touched to go on vacation. So now deduct from the deposit each years vacation, then add in the accrued interest for the remainder, and do that again every year and how long until you have run out of money? More like four years and you have absolutely nothing. If you bought the DVC in four years not only have you had several nice vacations, you have many more years of discounted vacations ahead you, and still you have your original investment of $8000 should you want to sell instead.

 

[HokieGCC]

I'm sorry but your analysis needs some work. You are presuming that the deposited money is never touched to go on vacation. So now deduct from the deposit each years vacation, then add in the accrued interest for the remainder, and do that again every year and how long until you have run out of money? More like four years and you have absolutely nothing. If you bought the DVC in four years not only have you had several nice vacations, you have many more years of discounted vacations ahead you, and still you have your original investment of $8000 should you want to sell instead.

What I did was improve the fidelity of the cost side of the DVC equation with the same 40 year period presented. I did not try and compare it to the cost of taking vacations for 40 years. That is the entire other half I did not attempt to address.

When I do the complete analysis for our Disney habits I generically get an 8-10 year break-even period.

DVC simply does not dramatically save you money. It can't. Reasonable analysis disproves this. Common sense disproves this. Do you really think that we are on to some secret way to save gobs of money going to Disney every year? Would Disney actually create a method to lose gobs of money they could otherwise have? Ha!

My contention is that DVC "can" save you some money if you are really accurate with your purchase and vacation habits. However, on balance my belief Disney comes out ahead with DVC members.

 

[skier_pete]

DVC simply does not dramatically save you money. you really think that we are on to some secret way to save gobs of money going to Disney every year? Would Disney actually create a method to lose gobs of money they could otherwise have?

Disagree. DVC saves the consumer money in the mid- to long- term. (As you say, at best in 8-10 years if compared to staying deluxe and buy direct, or if you normally stay moderate and buy resale. Longer if you normally stay moderate and buy direct.)

What Disney likes, as any business does, is that they (1) get the money from your stay up front and (2) they lock you in to spend your future money at Disney.

As for #1, most big businesses only worry about the next quarter/year. DVC gets people to pony up 10 years worth of stays up front. Then they collect enough money to cover the resort expenses (Maintenance Fees) each year. In this way, DVC only works as long as they continue to sell DVC units. There needs to always be a new DVC resorts. However, the profit for Disney is in that up front sale.

As for #2, the hotel stay is only a portion of your vacation dollar. There's park tickets, food, merchandise. All things the DVC customer will continue to buy ad infinitum. So this is a win for Disney as well.

However, the consumer clearly benefits from this in the long run. Ask anyone that bought into DVC 10+ years ago and still owns it if they are saving money. There's not one of them that won't tell you yes. (Well, you are correct in that SOME of them are probably now staying in 1 bedrooms instead of hotel rooms, and so therefore are spending as much as they used to for nicer accommodations.)