Point Rental Solution

[salmoneous]

B3 -

Now, personally, I think these exercises are a bit silly. But if you are going to do it, do it right. A few things you would need to consider....

1. People didn't pay $93/point
2. People haven't averaged 10.6% on their investments over the past 50 years
3. You have to factor taxes in the "lost" investment income
4. You have to factor in the tax deductable portion of the maintence fees.
5. You have to factor in the capital gains on the ownership of the points.

Each of these would tend to lower the cost in your calcuations. But, personally, I don't think this exercise is meaningful. In the real world, the "fair market price" of an item has nothing to do with the cost of the item - it is set by what the market is willing to pay.

If you are going to insist that people set their rental price based on their ownership costs, let's do the calcuation for a typcial DIS board participant.

They bought for $65/point. They have no lost investment income, since the fully financed their purchase with a tax deductable 5.9% HELOC. So their cost is $2.60/point in financing, plus after tax maintence cost of $4.00/point. Total cast of $6.60/point. From this we have to deduct their after-tax capital gains of about $1.60/point/year, for a net cost of $5.00 point.

Now if we assume that people should price their points based on what those points cost them, they should be charging was less than $10/point. But, as I said, I think that is nuts. People should charge what the market will allow, not something based on their costs.

 

[Boston5602]

All I'm Saying ............. anyways I just want to say the money I put into for investing every year will STILL get invested, the money i'm using to buy DVC would be spent down at disney and for the beach house rental at cape cod , neither of which I'm partaking of this year except for Disney with DVC. I also shut off all my premium cable stations for a year ( saving more than $1200.00) I guess what I'm saying is that money I would have spent on entertaining myself is still going to that . the cost of my points with this years MT fee is $7.18 each I'm sure next years points will be more depending on how much the fee is next year.


just my situation

 

[DVC Sadie]

Most people do not put all of their vacation money into a long term
investment portfolio but rather spend a certain amount yearly.

I agree with that, but even if they do not do that, they still must factor in the TRUE cost of what the money spent, would have done if invested.

What really compounds my computations, is if someone borrows money to purchase a DVC time share. If that is done, the #'s look even worse. Then not only didn't you invest the money, you PAID someone else 10%, to allow you to use/spend money you don't even have.

IMO borrowing money to purchase a time share is very foolish. Rather then make payments for 10 years, save on your own for 7 years and pay cash. Rather then paying 10% intrest for 10 years, SaVE the payment and invest it for 7 years. The total money spent on your part will be much less.

Well your true cost doesn't mean much to us. We bought 500 pts and no we did not choose to finance and are not worried or bothered about the outlay of cash not being used in our long term investments. To each there own.

 

[rinkwide]

...Rather then getting 1120 dollars of investment income from your 14k, you buy 152 DVC pts (you with me so far?)...

Weird thing is, the $14k I wasted on DVC is now worth over $18k on the resale market. So, can I be queen for a day?

My performance is not indicative of your future gain. People can, and do, lose money. You probably will.

 

[boatboatboat]

People didn't pay $93/point

what is the current price?


2. People haven't averaged 10.6% on their investments over the past 50 years

I agree, the mkt average over that time is higher then that. But non the less I used 8%

3. You have to factor taxes in the "lost" investment income


variable annuity contract. No taxes until redemtion. I also used a factor of 75% of the mkt return to allow for taxes. That's why my calculations use 8%


4. You have to factor in the tax deductable portion of the maintence fees.

ummmmmmm ya got me there. ya get an extra 50 dollar tax refund

5. You have to factor in the capital gains on the ownership of the points.
If kept full term the value will be zero. no gain there

 

[boatboatboat]

They bought for $65/point.

So if they paid 65, 10 years ago, that would be how much in todays dollars?


They have no lost investment income, since the fully financed their purchase with a tax deductable 5.9% HELOC

Sure they do that money could have been invested, it wasn't so you have lost income

. So their cost is $2.60/point in financing, plus after tax maintence cost of $4.00/point. Total cast of $6.60/point. From this we have to deduct their after-tax capital gains of about $1.60/point/year, for a net cost of $5.00 point.

how many will you rent me for 5 dollars? I'll take every point you are willing to rent me for that price. PM me for details..

Now if we assume that people should price their points based on what those points cost them, they should be charging was less than $10/point

correct, if we use faulty data, they should do that

People should charge what the market will allow, not something based on their costs.

novel idea.......... sell below cost, you can make it up in volume.....

 

[boatboatboat]

Weird thing is, the $14k I wasted on DVC is now worth over $18k on the resale market.

and what would that 14 be worth if invested at 8% for 12 years?


So, can I be queen for a day?


sure, but you'll need to lose the beard.

 

[snowbunny]

As someone who didn't have to invest 14k, and doesn't have to pay the 700 dollar taxes and dues each year (150 pt contract), what would YOU feel they should pay for that 325 dollar room?

This is where you're not making sense. It doesn't matter what I feel they should pay. It only matters whether we can come to agreement on whether what they will pay is acceptable to me.

In my case the point is moot, anyway, as I don't have enough points to have any substantial amount left over to rent out. But all this rending of garments over whether to charge $10, or $12, or $14 is just so much hot air....charge what you want, and then see if you have takers. If not, enjoy your points, it's really pretty simple.

 

[Paging Tom Morrow]

A person could simply invest 14k, and take the 1120 dollars and rent 112 pts@10 a pt each year from a DVC owner, and STILL have the 14k in the bank.

A one bedroom at BWV for may 28th-june 2nd=110 pts.


So you have your 5 days in WDW at BW, and STILL have your 14k in the bank, and simpy use the "gain" to fund/rent pts for your vacation each year.

OK - I now I see how you got that number, but I don't agree with two main assumptions....

#1 - The interest return of 8%. It's way too high.

"For long-term growth, stocks are considered the best traditional investment. Although past performance can't predict what will happen in the future, since 1925, U.S. stocks have averaged an annual return of about 10.2%, a higher return than most other investments. These nominal rates of return do not account for one important factor: inflation. Over the same period, inflation has been over 3% thereby lowering your real rate of return."

Source: http://www.addenergy.net/cia/sandproi.aspx

Once adjusted for inflation, the average real ROI is 7.15%. Considering most small invesotrs do not invest large sums of money in the S&P 500 index that combined for this return, using that index is misleading.

In fact, if $14k is your investment portfolio, investing that in the S&P 500 index would not be enough to own to withstand any significant short term losses.

A much better interest rate would be the 2.85% that have been average by corporate bonds over the same time period.

#2 - Your rental vacation doesn't equal the purchase of your DVC membership, so your aren't comparing like values. Another 40 points is another $400 a year.

If you invest $14k to receive a ROI of 3% and you rent the same 156 points for $1,560, your net fund will decrease by $1,140 per year. In 12 years, you'll be dipping into another source of income to rent those points.

 

[bdb7607]

OK - I now I see how you got that number, but I don't agree with two main assumptions....

#1 - The interest return of 8%. It's way too high.

"For long-term growth, stocks are considered the best traditional investment. Although past performance can't predict what will happen in the future, since 1925, U.S. stocks have averaged an annual return of about 10.2%, a higher return than most other investments. These nominal rates of return do not account for one important factor: inflation. Over the same period, inflation has been over 3% thereby lowering your real rate of return."

Source: http://www.addenergy.net/cia/sandproi.aspx

Once adjusted for inflation, the average real ROI is 7.15%. Considering most people do not invest large sums of money in these S&P 500 companies that combined for this return, using that index is misleading.

In fact, if $14k is your investment portfolio, the amount of stock that you could buy of S&P 500 companies would be nominal and not enough to own a significant size share to withstand any significant short term losses.

A much better interest rate would be the 2.85% that have been average by corporate bonds over the same time period.
#2 - Your rental vacation doesn't equal the purchase of your DVC membership, so your aren't comparing like values. Another 40 points is another $400 a year.

If you invest $14k to receive a ROI of 3% and you rent the same 156 points for $1,560, your net fund will decrease by $1,140 per year. In 12 years, you'll be dipping into another source of income to rent those points.

You had me at Hello, but then dropped me like a rock - you could buy the index...

 

[DrTomorrow]

Hey boat^3,

I loved your calculations, taking into account the opportunity cost of the money spent on DVC - great theoretical reasoning.

Useless, however, in real life. People considering DVC have already demonstrated a desire to have vacations, so they are either going to spend on DVC or spend on hotel rooms; your comparing 'buying DVC' vs 'No vacation' (that is, money is invested) is a hoot-and-a-half.

I remember a financial theoretician I knew - made a great (?!?) case that both buying and renting primary housing were much worse options than investing. Of course, when I asked "But don't you have to live somewhere?" his response was similar to yours: "Um, gimme a sec to figure out a come-back".

Keep fighting the good fight - and posting the results. Some folks comments just put a smile on my face.

IMHO - YMMV

 

[greenban]

Weird thing is, the $14k I wasted on DVC is now worth over $18k on the resale market. So, can I be queen for a day?

My performance is not indicative of your future gain. People can, and do, lose money. You probably will.

Okay....

Rinkwide is officially Queen For The Day, This March 19th, 2006 and every March 19th thereafter until 2042, or 2054 if he owns at SSR!

As it is said, So it is done!

-Tony

No Offerings are Implied or Offerred. Please read the prospective product offering statement before making any purchase. Apply brake before shifting into gear, Actual results will vary......

 

[Daitcher]

Hey boat^3,

I loved your calculations, taking into account the opportunity cost of the money spent on DVC - great theoretical reasoning.

Useless, however, in real life. People considering DVC have already demonstrated a desire to have vacations, so they are either going to spend on DVC or spend on hotel rooms; your comparing 'buying DVC' vs 'No vacation' (that is, money is invested) is a hoot-and-a-half.

I remember a financial theoretician I knew - made a great (?!?) case that both buying and renting primary housing were much worse options than investing. Of course, when I asked "But don't you have to live somewhere?" his response was similar to yours: "Um, gimme a sec to figure out a come-back".

Keep fighting the good fight - and posting the results. Some folks comments just put a smile on my face.

IMHO - YMMV

Dr.T,

Where have you been? I have a feeling you have gotten quite a few laughs with all of the recent posts. Welcome back.

DAVE

 

[boatboatboat]

#1 - The interest return of 8%. It's way too high.

No not at all, in fact the 8% figure I used is to low.

"For long-term growth, stocks are considered the best traditional investment. Although past performance can't predict what will happen in the future, since 1925, U.S. stocks have averaged an annual return of about 10.2%, a higher return than most other investments.

See above.


These nominal rates of return do not account for one important factor: inflation.

EGG-ZACT-LEE pts rented for 10 bucks in 96, and they STILL rent for 10 bucks in 06. Why? The cost of points has gone up from 60 to 100, the cost of dues/taxes 3 to 4.5

from Over the same period, inflation has been over 3% thereby lowering your real rate of return."

That is part of the reason I used 8 rather then the full 12%. I left room for inflation and taxes. 12% (real rate of return) minus 3=9. My 8% is to low

Considering most small invesotrs do not invest large sums of money in the S&P 500 index that combined for this return, using that index is misleading.

Ok so rather then use a 8% gain, to figure the REAL cost, use a MINUS 10% on the money invested. Let's see what the REAL cost of those points is, if someone has used Disney finance to buy in. THOSE NUMBERS will make your skin crawl.....

In fact, if $14k is your investment portfolio, investing that in the S&P 500 index would not be enough to own to withstand any significant short term losses.


yes some years are down.........some are up. It's what "average" means. We are talking 30-40 years here. The blip of 2000 is the least of my worry in this discussion.

A much better interest rate would be the 2.85% that have been average by corporate bonds over the same time period.

If your investing long term is done in bonds, PLESE contact a local CFP and spend some time with them. It will be well worth your time. Trust me

#2 - Your rental vacation doesn't equal the purchase of your DVC membership, so your aren't comparing like values. Another 40 points is another $400 a year.

but I still have 14k in the bank. spend fri/sat at bwv or have 14k in bank...... hmmmmmm what to do?

If you invest $14k to receive a ROI of 3%

If I do that long term, I should be shot, well maybe that is alittle strong. If I do that i should be forced to stay at SSR.

and you rent the same 156 points for $1,560, your net fund will decrease by $1,140 per year.

see above

In 12 years, you'll be dipping into another source of income to rent those points.

My other sources will prolly have gotten 12% due to wise investments, rather then the dog meat 3% you are talking about.

 

[boatboatboat]

Doc

I disagree

Useless, however, in real life. People considering DVC have already demonstrated a desire to have vacations, so they are either going to spend on DVC or spend on hotel rooms; your comparing 'buying DVC' vs 'No vacation' (that is, money is invested) is a hoot-and-a-half.

Why couldn't they take the 14k and rather then buy DVC invest in the index and pull out 1100 dollars a year (8%) and rent 110 pts and stay at the BW for 5 days every year. Heck they could stay at all stars for 15 days.

I know my logic is long winded and twisted to a degree, but I do believe it is sound. My logic says, why BUY DVC, when the real cost is 11.50 a point OR MORE, when you can find some uninformed owner to rent pts to you for 9,9.5,10 dollars per point.

He11 the more I think about it, I may go back and delete all my rants about this, sell my DVC and start renting. Granted my 11 mth window at the nice places will be gone, but I'll still be able to stay at WDW. Earl's sandwich shop takes the dining plan, so i won't starve.....

 

[boatboatboat]

Bunny have you ever rented points TO or FROM someone? If so what price did you pay or get for those?

 

[rinkwide]

...Why couldn't they take the 14k and rather then buy DVC invest in the index and pull out 1100 dollars a year (8%) and rent 110 pts and stay at the BW for 5 days every year...

I alluded to this ealier, you need to factor in DVCs powerful resale value. Most people will probably keep their membership around 10 years and won't see much erosion, if any, in their capital investment during that time.

Personally, with the appreciation of my BCV resale contract I bought 2 years ago, I've vacationed for free and made money on my principal (and I'd like my tiara in a size 7 1/4 please).

 

[boatboatboat]

hold on, let me do some calculations.........

 

[boatboatboat]

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.

 

[rinkwide]

...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...

Don't forget the rental income from your points which netted you around $5k (after fees) for that time period. So your net DVC value is over $19,000, OH MY...

That boat you're on is starting to look like the Titanic.