Spreadsheet Warriors - how have you calculated the all in real cost?

[eticketplease]

First day of school today I already can't wait for math homework

 

[longboard55]

The other thing is when many of us bought the T bill interest rates were around 1%, so it was not like you were losing much.

And oh yeah, I own DVC and a vacation condo in Waikiki, how much is the expense of freebies vacations for friends and families. Lets just say my daughter is doing well on her non investment.

 

[VGCgroupie]

The other thing is when many of us bought the T bill interest rates were around 1%, so it was not like you were losing much.

And oh yeah, I own DVC and a vacation condo in Waikiki, how much is the expense of freebies vacations for friends and families. Lets just say my daughter is doing well on her non investment.

Same

 

[Galactic Reversal]

It seems that people generally severely underestimate the impact of time value of money.

Yes, in terms of absolute dollars, dues over the life of the contract will outweigh initial costs by a large margin, that's not the same in dollars today.

$43pp in dues in 2067 sounds crazy, but if you discount that back to today at 8.5% (opportunity cost of that money over the long term), that's only $1.40 today.

I just took a resale Copper Creek contract as an example:

• Would cost ~$160pp to buy today including closing costs
• Assuming dues grow at 4% each year (maybe they grow more in the 2-3% long term inflation), you'll pay ~$952pp in absolute dollar dues over the life of the contract, which seems like it's MASSIVE
• But... if you discount all of those dues payments back to today at 8.5%, that $952 is only ~$160 today

So, accounting for TVM, you could generally expect that for a contract like that, it's about 50/50 upfront and dues, and you could estimate your total cost to be ~2x purchase price in today's dollars.

This is just looking from the cost side -- you can also model out all cash flow assumptions including cost avoidance of having to pay Disney directly for stays, rentals (in or out, depending on the year), etc. if you want to try and put a full "value" of ownership.

The PV of dues is quite sensitive to discount rate given the long time horizon. I would argue that discounting at 8.5% is too high, given DVC is more of a hedge against hotel rates and most people wouldn't otherwise invest the money in the market. They'd still spend it on vacations. That said, if you're literally selling stock to finance your DVC purchase 8.5% is probably a great assumption.

To your point, people do get quite dramatic about how much the dues "outweigh" the initial cost. If you like the contract, sure pay what you're comfortable with, but don't frame it like it doesn't matter because the dues are the real cost.

 

[Brian Noble]

Yep. If we argue for time of value money hoarding your cash in an investment account, why cant we calculate quality of life money too

Well, of course you should.

There are two parts to any purchase. First, what does it cost? That's just math, and as Mr. Incredible reminds us, math is math. TVOM is a mechanism that allows us to compare costs that are spread out in time to an equivalent cost in today's dollars as a single purchase. If we are considering alternatives, we can use this mechanism to compare the costs of those alternatives.

But, that's only one part. The other part is how do I value it? This is not just math, and unlike math it is going to be differnet for different people, becuase different people value different things. For example, I don't drink, and Disney's mocktail menus haven't caught up to the outside world. Because of that, I assign a lower value to the Dining Plan than someone who usually has a cocktail with dinner. And even that is probably too simple an example. A better one might be: I don't particularly care about being able to walk to a theme park, and I really hate the idea of packing and unpacking. So for me, a split stay sounds like torture, whereas for someone else it might be an ideal way to structure a vacation to walk almost everywhere.

I can also tell you that ignoring TVOM makes you a timeshare sales agent's best friend, becuase you are under-valuing the "cost" of the up-front purchase, and that's the part that generates commission and puts bread on that agent's table.

I have a great story of my brother doing a Hilton tour way back in the day. He has an MBA from Michgan; his wife has one from Notre Dame, but we love her anyway. The agent tried to use straight division to spread the initial payment over a longish ownership horizon, and my brother---a person who definitely understands TVOM---called him on it. The agent did it again about fifteen minutes later. It was at that point that my brother looked at the agent and said: "Look, we already talked about this, yet you keep doing it. So, you either assume I'm an idiot, or you actually are one. Either way, our conversation is done."

Boom: Sent directly to gifting to get him off the sales floor.

Now, it is true that you have to make some assumptions about the rate. But that assumption is not too difficult; it just depends on what, specifically, you are comparing. The details are left as an exercise to the reader.

 

[Brian Noble]

They'd still spend it on vacations.

I usually see the long-term after-tax market return rate used when comparing two very specific scenarios. In Scenario One: I buy DVC, pay Dues, and take vacations by using those points to book lodging. In Scenario Two: I take the buy-in cost of the contract in Scenario One and invest it. In every modeled year, I add what Dues would have cost on that Contract to my (hypothetical) investment, assuming that the overall investment grows with the expected rate of return. Then I rent points from an owner for exactly the same stays that I contemplated in Scenario One, paying for them out of the investment account.

The question then is: Does my investment balance in Scenario Two ever run out? If so, how long does that take?

This is essentially the MouseSavers analysis. But, even then, they do not use the same rate for the investment return that they use to discount future dues or rental costs. The latter is, instead, based on a reasonable assumption about inflation.

 

[VGCgroupie]

Well, of course you should.

There are two parts to any purchase. First, what does it cost? That's just math, and as Mr. Incredible reminds us, math is math. TVOM is a mechanism that allows us to compare costs that are spread out in time to an equivalent cost in today's dollars as a single purchase. If we are considering alternatives, we can use this mechanism to compare the costs of those alternatives.

But, that's only one part. The other part is how do I value it? This is not just math, and unlike math it is going to be differnet for different people, becuase different people value different things. For example, I don't drink, and Disney's mocktail menus haven't caught up to the outside world. Because of that, I assign a lower value to the Dining Plan than someone who usually has a cocktail with dinner. And even that is probably too simple an example. A better one might be: I don't particularly care about being able to walk to a theme park, and I really hate the idea of packing and unpacking. So for me, a split stay sounds like torture, whereas for someone else it might be an ideal way to structure a vacation to walk almost everywhere.

I can also tell you that ignoring TVOM makes you a timeshare sales agent's best friend, becuase you are under-valuing the "cost" of the up-front purchase, and that's the part that generates commission and puts bread on that agent's table.

I have a great story of my brother doing a Hilton tour way back in the day. He has an MBA from Michgan; his wife has one from Notre Dame, but we love her anyway. The agent tried to use straight division to spread the initial payment over a longish ownership horizon, and my brother---a person who definitely understands TVOM---called him on it. The agent did it again about fifteen minutes later. It was at that point that my brother looked at the agent and said: "Look, we already talked about this, yet you keep doing it. So, you either assume I'm an idiot, or you actually are one. Either way, our conversation is done."

Boom: Sent directly to gifting to get him off the sales floor.

Now, it is true that you have to make some assumptions about the rate. But that assumption is not too difficult; it just depends on what, specifically, you are comparing. The details are left as an exercise to the reader.

The first guide I talked to completely turned me off by repeating "only $xx.xx per month" after I told her many times I would not be financing. At some point it's frustrating when you feel like they are just giving canned robotic responses rather than actually listening to you.

 

[Galactic Reversal]

I usually see the long-term after-tax market return rate used when comparing two very specific scenarios. In Scenario One: I buy DVC, pay Dues, and take vacations by using those points to book lodging. In Scenario Two: I take the buy-in cost of the contract in Scenario One and invest it. In every modeled year, I add what Dues would have cost on that Contract to my (hypothetical) investment, assuming that the overall investment grows with the expected rate of return. Then I rent points from an owner for exactly the same stays that I contemplated in Scenario One, paying for them out of the investment account.

The question then is: Does my investment balance in Scenario Two ever run out? If so, how long does that take?

This is essentially the MouseSavers analysis. But, even then, they do not use the same rate for the investment return that they use to discount future dues or rental costs. The latter is, instead, based on a reasonable assumption about inflation.

The problem I have with this as a justification for using a higher discount rate is that it assumes frequent withdrawals, which then would require a steady predictable market return, especially early on in the projection. Do you skip a vacation on a down market year? It would be nice to have that flexibility, but then we're not really comparing apples to apples.

 

[Brian Noble]

"All models are wrong, but some are more wrong than others."

And yes, there is uncertainty in both Scnearios, though more in Scenario 2. I mean, I suppose we could monte carlo it, but I'm not going to.

 

[VGCgroupie]

And yes, there is uncertainty in both Scnearios, though more in Scenario 2. I mean, I suppose we could monte carlo it, but I'm not going to.

Always making me google stuff

Monte Carlo refers to a method of using random sampling to solve mathematical or physical problems, often through computer simulations. It is named after the Monte Carlo Casino in Monaco, reflecting the element of chance involved in the technique.

 

[Galactic Reversal]

"All models are wrong, but some are more wrong than others."

And yes, there is uncertainty in both Scnearios, though more in Scenario 2. I mean, I suppose we could monte carlo it, but I'm not going to.

It's a slippery slope. First you run an innocent monte carlo simulation, then you're neck-deep in mortality tables debating whether you'll still be around in year 30.

In all seriousness though, I just like to look at when I'll break even compared to 80% of rack rates. With resale I think we all come out far enough ahead that it's silly to get too bogged down in the nuances.

 

[Mousemath]

It seems that people generally severely underestimate the impact of time value of money.

Yes, in terms of absolute dollars, dues over the life of the contract will outweigh initial costs by a large margin, that's not the same in dollars today.

$43pp in dues in 2067 sounds crazy, but if you discount that back to today at 8.5% (opportunity cost of that money over the long term), that's only $1.40 today.

I just took a resale Copper Creek contract as an example:

• Would cost ~$160pp to buy today including closing costs
• Assuming dues grow at 4% each year (maybe they grow more in the 2-3% long term inflation), you'll pay ~$952pp in absolute dollar dues over the life of the contract, which seems like it's MASSIVE
• But... if you discount all of those dues payments back to today at 8.5%, that $952 is only ~$160 today

So, accounting for TVM, you could generally expect that for a contract like that, it's about 50/50 upfront and dues, and you could estimate your total cost to be ~2x purchase price in today's dollars.

This is just looking from the cost side -- you can also model out all cash flow assumptions including cost avoidance of having to pay Disney directly for stays, rentals (in or out, depending on the year), etc. if you want to try and put a full "value" of ownership.

I agree you have to look at Time value of money, but I think 8.5% is way too high. It sets a pretty high hurdle rate. I use long term bond yields instead as a long term risk free rate. I don’t need my timeshare to perform like equity markets.

It doesn’t make logical sense to me to assume that CCV dues down the road are so much less than the value today in 2025. I understand the math, I just don’t agree it’s the right discount rate. I do like the debate and the fact that we can all approach this differently.

 

[Mousemath]

It's a slippery slope. First you run an innocent monte carlo simulation, then you're neck-deep in mortality tables debating whether you'll still be around in year 30.

In all seriousness though, I just like to look at when I'll break even compared to 80% of rack rates. With resale I think we all come out far enough ahead that it's silly to get too bogged down in the nuances.

That’s a good point too. I go conservative on the value per point I can get which is what I base my model on. I feel good that I can get $18 a point, $20 probably of value.

 

[Genie+]

I ballparked the average yearly cost of my buy-in as very similar to my dues. When looking at the points needed nightly or per trip, I cost out my points at roughly double the dues. The dues increases will basically turn the calculation into that year’s dollar value, ~roughly at least.

My VGF direct was $161pp with 41 years left, roughly $4pp/py. With 3% to 3.5% compounded inflation over those 4 decades it averages out around $8pp/py, which is the cost of VGF dues this year. So I just consider each point we spend around $16 today. When my dues hit $10pp and $15pp, I’ll then consider each point spent around $20 and then $30.

VGF dues might be $10pp by 2030 for example, and that year I’ll cost them out around $20 each (which hopefully will feel like $16 does today). Then maybe sometime after 2035 dues might be $15pp, and I’ll cost them out around $30pp to ballpark how much we’re paying for the room.

That’s my plan at least Purely an estimate. I prefer this over thinking my points only cost $12pp/py ($4pp buy-in + $8 dues) to use in 2025 and I also preferred averaging the cost yearly.

If we ever sold then I could go back and get a more accurate take on what each point cost us and that would need to be framed with TVM.

 

[TDK44]

I agree you have to look at Time value of money, but I think 8.5% is way too high. It sets a pretty high hurdle rate. I use long term bond yields instead as a long term risk free rate. I don’t need my timeshare to perform like equity markets.

It's a question of what is your alternative return on capital. With a 40-year time horizon, investing in risk-free treasuries is way too conservative (any investment advisor would say the same thing).

Long-term average equity market total returns are 10%+. Long-term capital gains tax rate is 15%. So IMO 8.5% is as simple and conservative set-it-and-forget-it after-tax hurdle rate as possible.

 

[Mousemath]

It's a question of what is your alternative return on capital. With a 40-year time horizon, investing in risk-free treasuries is way too conservative (any investment advisor would say the same thing).

Long-term average equity market total returns are 10%+. Long-term capital gains tax rate is 15%. So IMO 8.5% is as simple and conservative set-it-and-forget-it after-tax hurdle rate as possible.

When you discount the future benefits at that same right, don’t you find it hard to break even on a contract? Assuming you’re not doing a straight comparison to rack rates.

 

[Brian Noble]

It's a question of what is your alternative return on capital. With a 40-year time horizon, investing in risk-free treasuries is way too conservative (any investment advisor would say the same thing).

But again, I think there are two different rates worth considering.

The opportunity cost rate on the purchase price is probably your expected long-term after-tax investment return. But the rate used to discount future flows is probably something in the neighborhood of expected inflation.

For example, the stock MouseSavers analysis uses 6.5% for the former, and 3.8% for the latter as I type this. I suspect the former is a litlte low, and the latter a little high, but probably not by too much.

 

[TDK44]

But again, I think there are two different rates worth considering.

The opportunity cost rate on the purchase price is probably your expected long-term after-tax investment return. But the rate used to discount future flows is probably something in the neighborhood of expected inflation.

For example, the stock MouseSavers analysis uses 6.5% for the former, and 3.8% for the latter as I type this. I suspect the former is a litlte low, and the latter a little high, but probably not by too much.

I don't agree on discounting future flows at a lower rate makes sense. If I put $100 in the market today and have it grow at 8.5% after tax, I could pay for something that costs $108.50 next year or something that costs $511.20 in 20 years, it's all the same. If anything, the benefit of being able to smooth out short term volatility over the long term means longer-dated cash flows should be discounted at an aggressive market rate.

And unless I'm misreading their spreadsheet, I think MouseSavers are using the 6.5% discount rate for all cash flows. The 3.8% is the growth rate on dues, rack rates, etc., which makes sense -- though I agree with you that over the long run this is too high. Nevertheless, they're still using the 6.5% rate to compare to today's dollars. This is their note: "Assumes buy-in cost and annual dues would be invested each January 1 earning 6.5% compounded annually."

While I think they've set the analysis up correctly, I still believe a 6.5% after tax return over 40+ years is just way too low.

When you discount the future benefits at that same right, don’t you find it hard to break even on a contract? Assuming you’re not doing a straight comparison to rack rates.

It's super dependent on what you consider the future benefits to be, but no, I'd say even with this discount rate you can still break even on a contract (resale, I don't think the same goes for direct).

Similar to how the Mousesavers analysis is laid out, you could compare to paying rack rate, rack rate with a discount, or renting from a DVC owner. I personally think comparing to rack rate is not the way to go, but it is still a point of comparison.

So for that same 100-point Copper Creek contract I was using as a comparison earlier, assuming you use all of your points throughout the life of the contract and then compare it to the costs of those same stays via different options, I see the present value of the contract in each scenario as:

• vs. rack rates: ~$30-40k
• vs. 25% discounted direct rates: ~$20-25k
• vs. renting DVC points: ~$3-6k (very tight, doesn't leave much room for assumption sensitivity)

So IMO buying a DVC contract only makes economic sense if:

1. You are *already* planning on traveling to Disney at the frequency that would allow you to use all of your points over your holding period (with some renting coming into play here too), especially in the early years of your ownership -- the more you pull forward the better.
2. You value the ease of booking yourself instead of finding someone to rent points from.
3. You are buying resale.

Otherwise, you're better off financially by investing your money in a Disney vacation fund and pulling from it for Disney vacations whenever you feel like it in the future.

Disclaimer: Obviously, a lot of individual circumstances change this -- high-value vacations or renting out points early can tilt the scales from a time value of money perspective; if you are financing, it kills the economics; if you are only planning on holding for a short period, as others have pointed out it's wildly dependent on your exit price assumption.

 

[Brian Noble]

I don't agree on discounting future flows at a lower rate makes sense. If I put $100 in the market today and have it grow at 8.5% after tax, I could pay for something that costs $108.50 next year or something that costs $511.20 in 20 years, it's all the same.

Yes, I understand that--I argue in favor of this point on DISboards all the time, and have for probably ten years, and maybe closer to twenty. But something that costs $100 today is only going to cost ~$104 next year. And Dues are a cost. So, if you want to know what your Dues bill is going to be in then-current dollars in N years, you should use something a little more than long-run inflation.

 

[stat]

I made a killer spreadsheet and it helped. There are valid sets of assumptions that make DVC make sense.

But some things didn't fit into it my spreadsheet and they made all the difference:

1. The pride of ownership- caring about the buildings, the staff, even the stinking tax assessments.
2. The pride of being a DVC member in general.
3. Full control over the booking process. Grabbing what I want with a few taps on my phone- no third parties involved, no waiting around. (Waitlists are different- I get something good enough and sometimes something better comes through).
4. Commitment / forced travel. Imagine it's your investment is a restricted annuity that pays yearly dividends of joy and memories.
5. Paying up front is a hedge of sorts. I have plenty of exposure to the stock market already. Taking some off the table diversifies my net worth into something less volatile and largely uncorrelated with my other investments. I might not get market average returns but I'm confident it's better than a HYSA and that's good enough for me.
6. This community.