Point Rental Solution

[Caskbill]

How about some real numbers for a change? Who do you think came out better the last 5 years? Someone who bought 150 points for about $11,032(Average Purchase price in 2001 was $73.55), or someone who 'invested' that money in the market, and rented points instead. (Let's say average rental price was $9.00/point)

In 2001 OKW dues were $3.13/point, so for a 5 year average (2001-2006) it comes out to $3.69/point.

Owner: pays average of $553/year maintenance fees on those 150 points. (paid $469 in 2001, and $637 in 2006)

Renter: Invests $11,032 in the market, and pays $9.00/point rental, or $1350/year. Pays $553 out of pocket, and removes the remaining $797 from his 'investment fund'.

Renter's 'investment grows per the chart for the S&P 500, shown below:

Now really, who do you think came out ahead? The renter will have spent $6750 in rental fees, or $3985 more than the 'owner' paid in maintenance fees.

So if our invester paid $2765 out of pocket (same as the owner paid in dues), and took $3985 out of the 'investment portfolio', what would happen. That's taking an average out of $797/year, which on an $11,000 investment, would require a gain of 7.22%/year. Close to your 8%, but I'm having a lot of trouble finding that 'gain' on the chart shown above.

Using the past 50 year market returns doesn't cut it. Take out the bull market of the 70's and 80's, and it's very different. The only fair comparison would be to take the market from 1991 to now, the same timeframe DVC exists. But don't forget that that market 'investment' must be lowered since in 1991 when presales began, DVC sold for $48.94/point, so you would have to use a starting 'investment' of $7341.

Finally, everything seems to be based on a rental fee of $10/point currently. What happens when that goes up to $12/point average. What does that do to the 'market invester's portfolio?

 

[Caskbill]

I bought BWV via a re-sale on 7-10-2000. I paid 9740 for 170 pts. The closing cost and blah blah blah cost right at 500 bucks 9740+500=10,240

Now if I sold this today, I would get right at about 82-83 a point, let's use 82.50 (fair enough?)

so 82.50 x 170=14,025

now if I had simply invested 10,240 at 8% (75% of the market return over 50 years), my 10,240 would have grown to $17,549. During those 7 years I had to pay aprox $5000.00 More dollars for taxes/dues

So if I would have invested the 10,240 it would have grown to $17,549, and add in the $5000.00 of taxes/dues over that time. OH MY.

I would have right at $22,500 if i hadn't bought DVC. But the good news is I can sell the contrcat for #14,025? Your logic is flawed.......

If you invested $10,240 in 2000, it would not have grown at 8% per year. Why don't you use the real numbers from 2000 to 2006. In reality, your DVC purchase has performed better than the market.

You add the dues to your logic. Those dues got you a vacation! Are you saying instead of going on vacation you invested that extra money? Ok, what if the DVC owner didn't go on vacation, but instead rented all 170 points each year? That would gross $11,900 for the period, leaving $6900 net. Add that to the $14,025 and you get $20,925 total for DVC owner. Now make your 'gain' realistic and DVC is way ahead.

 

[salmoneous]

Look, I hope people are having a fun an interesting conversation here, and that even if we disagree, it's nothing personal. If not, if people are taking this seriously, please don't read my post as I don't want to offend.

D3:

Anybody who believes they are going to get the kinds of returns you are assuming would be a fool to use their own capital to buy DVC. If they think that's what their money will earn, they will keep their money invested and use something like a HELOC to pay for Disney. When pricing out the cost of DVC, the most you should ever use for opportunity-investment costs is the after-tax HELOC rate.

(Note if for some reason you do want to keep using lost investment income, you do have to include taxes. VA's *are* taxable, just tax deferred. Ignoring those taxes is just as inappropriate at assuming people won't take advantage of cheap financing.

But, as people keep saying, what you paid for DVC isn't going to influence what you get in rental fees. That will entirely be set my what people are willing to pay. If you want to convince people to charge more that $10/point, the best way to do that is to convince them that if they *ask* for $11, they'll get it.

 

[boatboatboat]

What is the OC? just curious.......

Let's dabble with your angle alittle.

If i understand you, you think it would be a good "investment"

To buy DVC for 10k (like i did), pay 5 bucks a year for dues and taxes (I know it is 4.5 now, but it will be 6 bucks in 10 more years, so let's use 5)

and rent the points for 10 bucks?

Let's see where that takes us over 10 years, shall we.........


Invest 10K(buying resale which favors your side of the discussion) and add 850 per year, and get a 8% rate of return (only 75% of mkt).

That 10k+850 per year, in 10 years=$34,887.00

Now if I understand you, you think buying DVC, renting the points for 10 bucks, paying the 5 for taxes/dues and then selling the contract is a wise investment. Let's see.......

Ok, We buy for 10k (rounded down btw, to assist your side of this debate), and rent the 170 pts for 1700 per year. Take the 1700 and pay $850 back to WDW for taxes/dues. That leaves me with 850 of POSITIVE cash flow to invest. Let's earn 8% on that money to keep things nice and even. Fair enough? $850.00 (the gain per year after taxes/dues are subtracted from the rental income) will grow to $13,298.

Ok, so the $850 gain each year invested for 10 years at 8% will grow to $13,298. Now we decide to sell the DVC contract we bought for 10k. What can we sell it for? Well the contract i bout 6 years ago for 60 bucks a pts can be sold today for $82.50 a point, so in 4 more years with a ton of ssr points on the mkt, and bwv 4 years closer to ending, we should be able to get 95. So my contract should be worth $16,150.

So we sold the contract for 16,150 and we earned $13,298 in rental income (after taxes and dues). $16,150+13,298=$29,448.

We established before that if I had simply invested the 10k and added the amount for taxes/dues to that each year for 10 years, the "investment" would have grown to $34,887.00, which is OBVIOULSY more then $29,448 by $5439.

Now that $5439 is the key number, because it shows us how much we are UNDER pricing our pts.

Follow me here.

over the 10 years at 170 pts per year, we will have gotten 170 x 10=1700 pts.

Now take $5439 and divide by 170=$3.19.

take the renting price of $10 and add $3.19 to it, and you have $13.19 as the TRUE value of a point.

I have thought this through very well, I deal with numbers every day in my work, from an investment and tax stand point. Basicly I crunch numbers for a living.

 

[boatboatboat]

snicker at Caskbill selecting 5 years from the past 50 years of date to use as his talking point.

 

[boatboatboat]

In reality, your DVC purchase has performed better than the market.

No it hasn't. Just did a search on my companies my 401k. Using MY ACCOUNT, so these are MY NUMBERS, my rate of return on MY 401k since Oct of 1989 is 14.8%.

I went to look at my wifes 403b account, but the sites server is down? I'll be curious what those numbers show. She has only been in the account since about 92-93?

that's what I have done.

In times of trouble an indexed fund is your friend...........

 

[rinkwide]

<bowman>

Iceberg, right ahead!

</bowman>

 

[boatboatboat]

well thought out response.

BTW what is the OC?

 

[greenban]

I bought BWV via a re-sale on 7-10-2000. I paid 9740 for 170 pts. The closing cost and blah blah blah cost right at 500 bucks 9740+500=10,240

Now if I sold this today, I would get right at about 82-83 a point, let's use 82.50 (fair enough?)

so 82.50 x 170=14,025

now if I had simply invested 10,240 at 8% (75% of the market return over 50 years), my 10,240 would have grown to $17,549. During those 7 years I had to pay aprox $5000.00 More dollars for taxes/dues.

So if I would have invested the 10,240 it would have grown to $17,549, and add in the $5000.00 of taxes/dues over that time. OH MY.

I would have right at $22,500 if i hadn't bought DVC. But the good news is I can sell the contrcat for #14,025? Your logic is flawed.......

So no you can't have that size of a tiara, 2 Earls coupons, but no tiara.

Also keep in mind, I allowed these number to be done with LOW RESALE prices. What if I had bought from DVC? The number would be even worse.

In addition, keep in mind, that someday the value of a BWV contract will start to DECLINE in value..........where the investment shall continue to increase year after year.

Forgive me as I have been lurking on these threads.

Like Pooh, my math & logic skills are a little wobbly, so please bear (no pun intended) with me.

Don't you also pay 10-12% in commisons for selling your DVC? Won't that make your calculations even more compelling?

TIA!

-Tony

 

[boatboatboat]

I am under the impression the buyer pays the commish. I did add the commish into the number at the buy in, the 10,240 includes the BUYER (me)paying the commish.

When you sell it the new owner will pay the commish, so the seller will be getting the 95 dollar per point in full.

atleast that is how I figured it.......

 

[Happy Birthday Cat]

The commission is paid from the sellers proceeds, not by the buyer.

HBC

 

[boatboatboat]

you are right.....

I PAID "closing" cost.......... I got the two mixed up.

So Greenban is correct the numbers are EVEN worse then I posted.

Rinkwide was trying to pull one over on me. I'll keep a sharp eye on him in the furture.........

 

[Paging Tom Morrow]

Don't you also pay 10-12% in commisons for selling your DVC? Won't that make your calculations even more compelling?

TIA!

-Tony

Most real estate agents take 6%. 10% would be extremely high. Also, you could very easily list your DVC points for resale on eBay and not have to pay a real estate commission at all.

So, no, it doesn't.

 

[Paging Tom Morrow]

snicker at Caskbill selecting 5 years from the past 50 years of date to use as his talking point.

Right....

So what you are saying is that it's better to compare the potential ROI to what happened 40 years ago in a non-global economy to what it happening today in a totally different economy.

Sorry, I'll stick with what has recently happened rather than judge my potential profits based on how Woolworth's performed in 1962.

 

[dianeschlicht]

My comment has nothing to do with the most recent discussion on this thread, but is rather aimed at the Original Post.... O say, don't bother to rent at all. Just use your points yourself and renters can buy their own points. I do have my tongue planted a bit in one cheek, but I personally don't want the hassle of renting points.

 

[greenban]

Most real estate agents take 6%. 10% would be extremely high. Also, you could very easily list your DVC points for resale on eBay and not have to pay a real estate commission at all.

So, no, it doesn't.

I STRONGLY suggest that you look at real estate agents reselling timeshares, and check out their comission rates!

-Tony

 

[boatboatboat]

what are the rates?

I have no clue.

I just bought 65 pts(from dvc) at 87 a pt=5655, what was commish on that?

 

[RobDoc]

In reality, your DVC purchase has performed better than the market.

No it hasn't. Just did a search on my companies my 401k. Using MY ACCOUNT, so these are MY NUMBERS, my rate of return on MY 401k since Oct of 1989 is 14.8%.

I went to look at my wifes 403b account, but the sites server is down? I'll be curious what those numbers show. She has only been in the account since about 92-93?

that's what I have done.

In times of trouble an indexed fund is your friend...........

You haven't owned DVC since 1989- you already stated that you purchased resale in 2000- which, I assume, is why Caskbill compared the market performance from the same time period that you had used in your example. I can assure you that your fund did not make 14.8% or even 8% (it actually probably lost during that time frame) and his assertion that DVC would have outperformed your 401(K) is absolutely correct. In addition, you couldn't have used the "profit" from the 401(k) monies to pay for your vacations - without having to pay taxes on those funds- making your argument fail even more than it already does. There is a huge difference when investing in tax deferred programs (like pensions or 401(k) ) that investing it personally. For most members, DVC was purchased using after tax dollars - whereas 401(K) plans have used pretax money. However, those funds will be taxed when they are later removed and you seemed to conveniently forget to include that aspect in your analysis.

...In addition, keep in mind, that someday the value of a BWV contract will start to DECLINE in value..........where the investment shall continue to increase year after year.

If you have been using the invested money to pay for vacations (or are you not taking vacations?) your principle amount will have begun to decrease very early on. By the time the BWV contract begins to depreciate, there is not likely to be much left of the initial investment. The cost of using the BWV points will still be only the annual fees- the cash reservations, either thru Disney or point rental, will still be far more than the annual fees.

Dontcha just love this new math- where you can misstate all the facts you need to prove the point you want to make instead of using real numbers?

 

[rinkwide]

*ship's orchestra*

Nearer, my god, to thee...

*/ship's orchestra*

 

[boatboatboat]

You haven't owned DVC since 1989- you already stated that you purchased resale in 2000- which,

I used 1989 because that is as far back as I could go, and pull up MY records. I wish i could have gone back 50 years.

I assume, is why Caskbill compared the market performance from the same time period that you had used in your example.

well to look at 5 years when having a discussion about 50 years is foolish

I can assure you that your fund did not make 14.8% or even 8% (it actually probably lost during that time frame) and his assertion that DVC would have outperformed your 401(K) is absolutely correct.

ya got me there, if we plucked 5 years out of a 50 year discussion, you would be right. But since we were talking LONG TERM, we shouldn't do that. But if you want to allow 5 year blocks of time, care to look at 1995-2000?

In addition, you couldn't have used the "profit" from the 401(k) monies to pay for your vacations - without having to pay taxes on those funds- making your argument fail even more than it already does.

The example was simply to show the rate of return someione could have gotten over that time frame. My non tax qualified investments tend to mirror my other investments.

There is a huge difference when investing in tax deferred programs (like pensions or 401(k) ) that investing it personally. For most members, DVC was purchased using after tax dollars - whereas 401(K) plans have used pretax money. However, those funds will be taxed when they are later removed and you seemed to conveniently forget to include that aspect in your analysis.

the rate of return stays the same. variable indexed annuity products are your friend