Question on points value depreciation

[AllieV]

I'm having trouble understanding the cost of resales and can only figure that it's "worth whatever someone is willing to pay" kind of deal.

Boardwalk sold in 1996 for about $65 per point for 46 years. That's about $1.41 per point per year. Using basic depreciation, it should sell in 2011 (15 years later) for about $21 less per point, which would means it's worth $44 per point now, assuming it doesn't have an extended expiration date. But I see them constantly for sale for far more than they were purchased for originally.

Five years ago, Saratoga Springs offered to sell us points at $86 per point for 48 years, which is $1.79 per point per year. Five years later, that should sell for $8.95 less, or $77.

So what's the deal?

 

[ORD2KOA]

From my perspective, typical depreciation doesn't apply because the cost for new owners to buy in has been inflated. While the value of the physical property may have depreciated and there are fewer years left to use the points, the cost for new buy-ins is more than double what BWV owners paid when they made their original purchase.

So let's say that someone bought direct at BLT in 2010 and paid $130 per point. Their expiration is 50 years later, so using your calculation, $2.60 per point per year.

Why wouldn't a BWV resale with 30 years left use that figure - $2.60 per point per year or $78 per point - when they value their points? Or a SSR with 43 years left be valued at $111.80 per point?

The only "premium" that the BLT points bought direct at full price gives a new owner is the ability to book into BLT 11 months in advance. The number of points used for every reservation is the same, no matter when you bought or what resort you bought or how you desire to use your points.

From my perspective, that means that all points, since they have equal buying power, are worth $2.60 per point per year.

I think that the prices being charged for resales are bargains. Some are definitely people who are in dire financial straits and need to dump their contracts, but most are very fairly priced, for both the seller and the buyer.

This may not make sense to anyone else, but that's how I see it.

BTW - I don't know off-hand what the price is in Hawaii, but IMO, that inflated price causes all existing points to be inflated as well. You can stay there for the same number of points, no matter what you paid for your points originally.

 

[JimMIA]

I'm having trouble understanding the cost of resales and can only figure that it's "worth whatever someone is willing to pay" kind of deal.

That's the only correct answer in any real estate price -- the right price is that which a buyer is willing to pay and a seller is willing to accept.

If you take the "points is points" approach (which I do), then there are two ways of looking at pricing. One is the way ORD2KOA did -- assuming that the direct price reflects true value -- which gives a value per point of $2.60.

However, the way I would calculate it would be the opposite.

First of all, I'd exclude VB, VGC, HHI, and Aulani because their points aren't WDW and don't give me an 11-month booking window at WDW. Therefore, their points are not really "equal" any WDW resort for my purposes (although they would be better for someone who wanted the 11-month window at one of those resorts).

Then, I'd look at the places where points are selling for the lowest prices, not the highest. That would be OKW and SSR. Both are currently selling for about $60, maybe a little less. Let's take SSR's expiration, because it's the longest with 46 years left. $60/46 = $1.30.

By my math, the real value of a point is $1.30 + whatever your annual dues are. So I consider the direct prices to be OVERpriced -- in fact, priced about double their true value.

 

[JimMIA]

I'm having trouble understanding the cost of resales and can only figure that it's "worth whatever someone is willing to pay" kind of deal.

Boardwalk sold in 1996 for about $65 per point for 46 years. That's about $1.41 per point per year. Using basic depreciation, it should sell in 2011 (15 years later) for about $21 less per point, which would means it's worth $44 per point now, assuming it doesn't have an extended expiration date.

The problem with this approach is that you are using straight-line depreciation and no timeshare depreciates in value that way. Most timeshares lose most of their resale value as soon as the original owner closes with the developer. At best, it's like a new car losing a lot of its value as soon as you drive it off the lot. You can literally buy some great timeshares on eBay for $1, and often with free closing.

For resale prices, the real key is ROFR. For more than a year, for a variety of reasons probably, Disney has basically abandoned ROFR...which has allowed prices to seek their own level (sorta). The result has been a pronounced, but gradual, downward movement of resale prices. And that movement has also been very uneven, with BLT selling resale for about 15-20% lower than direct, but with AKV selling for almost 40% lower than direct.

If Disney continues their current ROFR strategy, the question then becomes "How low can you go?" For that reason, I think anyone buying should consider their purchase price a "sunk cost" -- meaning money they will never see again.

 

[TisBit]

I'm having trouble understanding the cost of resales and can only figure that it's "worth whatever someone is willing to pay" kind of deal.

Boardwalk sold in 1996 for about $65 per point for 46 years. That's about $1.41 per point per year. Using basic depreciation, it should sell in 2011 (15 years later) for about $21 less per point, which would means it's worth $44 per point now, assuming it doesn't have an extended expiration date. But I see them constantly for sale for far more than they were purchased for originally.

Five years ago, Saratoga Springs offered to sell us points at $86 per point for 48 years, which is $1.79 per point per year. Five years later, that should sell for $8.95 less, or $77.

So what's the deal?

Another factor that must be considered is inflation. A dollar 7 years ago is not the same as a dollar today....and when you factor in a dollar 20 years ago (OKW) it will grow even more.

But, it really comes to supply and demand. The more contracts for a particular resort is on sale will result in lower prices, the less contracts and more demand will result in an increase.

 

[Plutofan]

As I see it if the prices of rooms stayed the same then you math would be correct. As people compare the cost of a room at current prices versus the purchase price of DVC the contracts tend to keep their value and not depreciate as much when you do it level.

 

[JimMIA]

As I see it if the prices of rooms stayed the same then you math would be correct. As people compare the cost of a room at current prices versus the purchase price of DVC the contracts tend to keep their value and not depreciate as much when you do it level.

That's a good point if you are comparing the cost of your DVC vs. staying in an onsite Disney hotel.

But usually when people talk about the declining prices on the resale market, they're not talking about comparable value to Disney rack rates. Or even discounted Disney rates. They're talking about how much money they will save buying resale, or what their net would be if they sold.

By just about any comparison, the differential between resale and direct has reached levels that make it difficult to justify buying anything but very small contracts direct...even with the 3/20 differences. And for the sellers, while many original owners made money in the early years, most people who have bought in the last 5-8 years would lose money if they sold today.