Question about the "break-even" point

[mrudman]

Ok, I know I am totally over-analyzing this, but I really want to make a truly informed decision when we decide whether or not to buy into DVC.

I made up a chart, which I believe to be accurate, and it is totally confusing me.

All along, everybody has said here that it is not worth it to buy into DVC unless you're planning on staying at least every other year, if not every year, at a moderate or deluxe resort.

So using POR as an example, and using their summer rates, which right now is advertised as $1479 for a 7-night stay, I made up a chart that gives an example of going every year, every other year, and every 3rd year.

At this point, if we buy into DVC, I'm thinking we'd probably go down every other year, but on occasion, possibly every 3rd year.

My chart is confusing me though, because according to it, you're actually breaking even on rates in much less visits by visiting less often.
Please someone point out my mistake in the chart if there is one...

I tried to make a very simplified chart, therefore the contracts are probably not going to be feasible to find at the points that I'm made them. But I've "made up" contract #'s and amounts that are valued at $75/pt (average to high re-sale value at SSR right now), and dues are based on $4.34/pt for all 3 contracts.

But in my chart, it is showing that the "break-even point" for:

The "every year" contract is 10 years (10 visits)
The "every other year" contract is 10 years (5 visits)
The "every 3rd year" contract is 9 years (3 visits).

This is really confusing me, because if I buy a 41 pt contract, I could be saving money on my 3rd visit to WDW??

And even after that, according to the dues amount (177.94/yr) and the amount I'd be paying at POR (1479), I'd only have to go once every 8 yrs to stay "even"? And that's even considering a moderate resort, not even a deluxe one.

That can't be right! What am I missing?

(btw, I know dues will increase, as will hotel rates, so am just ignoring both those rate increases for now, so they kind of cancel each other out)

After I posted this chart, I realized I put the colored blocks in the wrong year on the 2nd and 3rd columns, but still works out to be 5 visits and 3 visits as far as I can tell (give or take $100 or so)

 

[DVCGeek]

That sounds possible. Keep in mind that for less frequent visits you are buying fewer points, which in turn means lower dues every year. Just make sure you calculate that dues are still EVERY year weather you travel or not, and that dues will increase every year. However, that is typically offset by the fact that room rates will as well.

Also, make sure you have some extra points as a cushion because the point charts can change (and did for 2010)!!!

 

[mrudman]

Yea, I took into consideration adding dues every year... and still getting the break-even points I had said. Just seems odd to me that it takes that few of visits to break even overall....

And really odd to me that we'd only need to go every 8 yrs? Does that seem right? (once we had broken-even from initial investment)

 

[yaawgmoth]

When you consider the buy in rate
X
And the Yearly Dues
Y
You obviously received the rate of xy which you have increased from year to year.
There are a few variables you should consider in writing this policy
1) The cost of POR right now is $200 per night, have you added in taxes and other fees associated with this rate. This would ask for a new formula.
2) The rooms in POR do not include any amenities for cooking and or bringing food to bring down disney food costs.
I did much the same as you have and made a chart, then purchased a 160pt contract.
This allows me to stay and I figured I break even at 5 years. Since my cost of dues may amount to $500 per year, that covers 2 nights of stay at POR and then leaves me 5-7 nights of cost recovery

Or, as my thoughts muddled around the stay, I figure it costs me $320 per year I own the contract (AK) and $500 for dues pet year, which then offers a weeks stay for $820 and I am not paying taxes.
Lastly, in my weird calculations, that is $117.14 per night of stay with the cost of points at 100 per point.

Hope that helps your confusion

 

[georgeat]

The way you did it gets the result you see. But the comparison should be with the SAME amount of points in each contract. That would give the same cost over the three different travel periods. Hope this helps

 

[Chic]

Understand this first: I am a Disney fanatic and visit way too often. I visit more than any socially adjusted human being should ever consider. With that being said, my family's break even point is two and a half years. We always visit Sunday through Thursday. We did this before we were DVC members too. We always stayed in a Deluxe Disney resort so our 5 day rate for a room was around $2600. We visit every other month so 6 times a year cost $15,600. A Studio room averages 14 points a night so we needed 420 points to maintain our annual Mickey Mouse phobia. A 420 point Saratoga Springs contract through Disney in July 2007 cost $95 a point which is $39,900. Divide $39,900 by $15,600 a year and you get 2.5 years to break even. When I purchased my contract in 2007, we had 46 years remaining before it expired. I consider 43 years of free vacations, minus maintenance fees, to be a pretty good investment.

 

[joeytdog]

I always compare it to the cost of renting DVC points not the rack rate of deluxe

 

[Mickey'sApprentice]

I'm a little confused by the once in 8 year thing as you would lose points if you did not go at least every 3rd year.

Plus, I doubt that you will be able to find a contract for exactly 41 points.

We love our small contract, but I highly recommend that you choose your use year wisely, and always plan trips early in your use year. With a small contract, your points are a little more near and dear to you.

We have a Feb. UY and could not take a planned Nov. trip to Hilton Head. We ended up using our points on a frigid January weekend just so we wouldn't lose them. I would hate to have 3 years worth of points tied into a reservation that we had to cancel.

You also need to remember that you will be going to WDW. That requires theme park tickets, transportation, food, and souvenirs. That is the biggest expense that we didn't factor in.

 

[Mickey'sApprentice]

A small contract is exactly what I've talked to my relatives about.

Think about it...you spend $4,000 or less after you pay closing cost for 50 points. That allows you to stay in a studio every year with maintenance fees of $250.00. Wow!

If you make that every other year...you purchase 25 points for say $2500 and have $125 dues every year. If you put that on the monthly draft...its $10/month!!

We've paid rack rate for 1 vacation that was over $2500!!

So lets say you miss your Disney fix one year and go to a state park (heaven forbid) and use that money to purchase. You can then go DVC every other year for the next 45 years for next to nothing!!!

BEAUTIFUL!!!

 

[Caskbill]

You're seeing those results because of the initial buy-in amount. Since that's an up front cost, it takes longer for the comparable savings to show up. When you buy fewer points, your initial up front costs are lower, so it doesn't take as many comparable 'rentals' before it matches the up-front cost of the original purchase.

You could take it to the extreme. Suppose you could buy just one point, and bank it every year cumulatively. After 10 years you could get a Studio somewhere for 10 points. Your total cost would be about $120 ($75 purchase plus $4.50 per year for 10 years). Compare to the hotel at $211 for the night, you actually broke even in less than one visit.

It would work the same for any other type of comparison. Suppose you compare buying a car versus a car rental agency. If it cost $50/day to rent a car (not lease it), ignoring for now any maintenance issues, taxes, etc., then the length of time to break-even depends on the initial cost of the car.

If the initial cost is $20,000, then it takes 400 days to break even comparing to $50/day.

But if the initial cost was only $10,000 then it's 200 days to break even.

 

[mrudman]

Thanks for all your replies,

All of you did bring up a lot of good points about things to consider.. I was just really trying to over-simplify it this time, just to see if my thinking was even correct.

And just to clarify, I know I'd lose the points if we only went every 8 yrs, but that's the magic of it.. we go every 8 yrs and still break even.. go more often than that and be that much more ahead (or even if I had family members that wanted to go, I could treat them to a week down there).

Just really surprises me that it really is that much a deal with the dvc,

I know there's a tons of other expenses along with the room, but to think I could have a great room for 7-8 nights (using 50-pt contract) every 3 yrs for 45 yrs for just an initial investment of approx. $4000 plus $217 or so per yr in dues is just awesome,

 

[dcamdad]

I think you are totally over thinking it, besides your numers are flawed. Dues will probably increase yearly, typically there is a 3 - 5% increase yearly, and POR cash rates will certainly increase over the 10 year period you are trying to forcast.

 

[cdmickey]

All you have to really do is get the numbers close. The difference in the accomodations will make up for any slight overages (dollars wise) that might or might not occur. It's just so much nicer at DVC (at least as my take of it is).

 

[crisi]

You also aren't calculating time value of money - which changes the calculation.

Also note that you are going to be buying small contracts resale - you may end up with more points than you need or pay more money for those contracts. Small contracts usually carry a premium and aren't always easy to lay your hands on in the exact configuration you want.

The other point is that DVC is insideous. The reason it doesn't save a lot of people money is because they (we, I) are not disciplined enough to use it as we would use a regular hotel stay. We aren't happy in a studio. We invite family. We have kids and need a one bedroom. We suddenly decide that since we are saving so much on our hotel room, we should eat at signature restaurants and go see Cirque.

The third point is to make sure to compare value to value - if housekeeping is adding no value to you than you can ignore it. But if you do get value from daily housekeeping you need to remember you aren't getting it without paying extra for DVC. Most DVCers don't mind - I do, but it isn't worth it to pay what DVC charges for it to me.

 

[PrincessDadx2]

Your mistake on the smaller contracts is if you only go to DVC every two or three years you cannot assume you go to POR EVERY year. So your comparison is DVC for 3 years vs. POR for 1 year to make it equivalent.

 

[RLRDA]

Understand this first: I am a Disney fanatic and visit way too often. I visit more than any socially adjusted human being should ever consider.

 

[starbox]

The other point is that DVC is insideous. The reason it doesn't save a lot of people money is because they (we, I) are not disciplined enough to use it as we would use a regular hotel stay. We aren't happy in a studio. We invite family. We have kids and need a one bedroom. We suddenly decide that since we are saving so much on our hotel room, we should eat at signature restaurants and go see Cirque.

Yup - and those dang annual passes - most DVC owners stay long enough to make the annual pass a logical "jump". Our family of four (both kids over 10) pays close to 1,500 a year just on annual passes (once tax is figured in)

Realistically, you could always travel to Disney w/a good travel agent and get discounts and deals. I think with all varied promotions figured, many people end up with about 40% off their room (whether that comes as buy 4 get three free, free dining, resort upgrades, room discounts)

If you figured out what the vacations I've taken in four years (we usually stay in studios and have gotten over 20 nights per year) would cost at rack rate - I've more than "broken even" - but without DVC, I would have spent around 4,000 a year on a 7-night dining-inclusive package at a mod.

My gut feeling is that if I divided the total cost of DVC by 10 years, I'd be spending what a deluxe week-long would cost each year. After the tenth year, I'd start "saving".

Figure a 160 point contract - at about 16,000 - enough points for seven consecutive nights.

That's 1,600 a year for ten years plus dues (add about 500$) - so 2,100 for your room. You could easily get a deluxe room for 7 nights for that amount.

BUT - after that - you're looking at just the cost of dues per year.

So - I think you need to be planning to use your contract AT Disney for more than ten years to see it save you money.

 

[Caskbill]

Your mistake on the smaller contracts is if you only go to DVC every two or three years you cannot assume you go to POR EVERY year. So your comparison is DVC for 3 years vs. POR for 1 year to make it equivalent.

But if you look at it, he's not comparing years, even though it looks like it on his spreadsheet.

He's comparing 'visits'. If he went every three years at DVC, that's 3 visits in 9 years. So he's comparing it to 3 visits to the hotel room.

While the time value of money, inflation, etc all factor in, I think it's fair to just use current values for the 'comparison'. After all, while dues will go up, so will hotel rooms. Actually, if you add inflation in, the break even point gets shorter. This is because adding 3% for example to dues, and adding 3% to a hotel room, makes the difference between the two even greater.

For example, if a room is 10 points and dues are $4.50, then it's $45 worth of dues for the room for one night. Compared to a $200 hotel room, that's a difference saved of $155/night which is then used as a comparison to the original purchase price toward figuring the break even point. If next year everything goes up by 3%, then dues are $4.64 and the 10 point room becomes $46.40. The $200 hotel room becomes $206. Now the amount saved is $159.60. That's $4.60 more, per night, that applies toward the initial purchase, thus shortening the break-even point.

If you add the time value of money, then the opposite occurs and the break even point gets longer. If you finance instead, then instead of the time value of money you have to add the finance charges instead, which makes it longer.

So in the long run, the value of the money increases the break even point while inflation reduces it. For this reason just using current values and ignoring the other variables is a fair way to determine the approximate break even point.

 

[Anal Annie]

All I can add to this conversation is that I freely admit that I'm not a numbers person but I've calculated accommodations only costs based on the rack rates on what we've got booked for this year (4 nights in a studio at SSR over Memorial Day weekend, 7 nights in a studio at BCV in August and 3 nights in an OVIR at VB in August for a total of 14 nights). The cash rate combined altogether would be $4,767 including hotel tax. We still have 25 points left to bank into next year which will be a bonus for us next year. Our annual dues are $1,098. Annual cash price less dues = $3,669. We have 250 points purchased for a total of $21,500. $21,500 less $3,669 = 5.85. Alright, I accept that this is far from scientific or mathematically correct and it's rough, but it works in my mind. I remove the annual dues from the equation, price what it WOULD'VE cost us to go and divide our purchase price by what's left. So with my calculations we break even in slightly less than 6 years with 14 nights / year and by staying in studios. Of course each year will vary slightly depending on exactly what we do, when we go and where we stay. But based on our use over the last 2 years I feel this is somewhat in the right ballpark. (And I'm too stubborn for anyone to tell me otherwise!)

Also, personally, I would never compare DVC units to a moderate resort. You get so much more with DVC that IMO you should compare to deluxe resort prices. Someone else said not to base it on CRO prices but rather on rental prices, however I believe that MOST people would make their reservations thru CRO and not thru the rent / trade board. I know that's likely how we would've done it prior to owning and knowing about the DIS boards etc. So for me that's a more comparable way to do it. I don't think renting points would occur to most people outside of the DIS. I've been known to be wrong before tho. But that's just my opinion on that one.