To Buy 2042 or not to buy 2042

[Sandisw]

If you assign a value of 50% what you paid per point for VGF (which historically would be a conservative estimate) I wonder what the current value to purchase Boardwalk would have to be in comparison to VGF.

With the $30/pt difference used in the example, on a 200 point contract, you are spending an extra $6K for VGF vs. BWV.

In 19 years, BWV is worth $0...VGF is most certainly going to be worth more than $6k. And, I am discounting the difference in MF's as a wash against TVM.

Now, if someone really wants BWV and home resort advantage, I think they should buy it. But, if they are okay with VGF and book at 7 months at BWV, because travel times are flexible, then VGF might make more financial sense.

 

[Jlo85]

Does this assume VGF is worth $0 in 2042 if one wanted to sell?

No it assumes you sell VGF in 2042 with a 4% annual increase in value. It’s the $42,542 in the 2042 column. Discounting that $42,542 in todays dollars it’s only worth like $6K. So it sounds like a lot, but because a it’s 20 years away… it’s not really that much of savings.

 

[Yankee626]

I probably would not by any DVC product until they give back Park Ticket discounts, Its ridiculous that they dont offer any.

 

[sethschroeder]

This is super simple. One side you are buying DVC twice the other side you are buying DVC once. Unless I am buying 2x for half off that math doesn't really work for me.

Yes that super simple but I did my math in the past and realized I didn't want to need to drop a large amount of money as I am entering the zone of starting to think about retirement. Instead I would like the option to sell off DVC at that point for a little money or keep it for a reduced cost of staying at WDW still.

 

[RoseGold]

BW on Fidelity in the 110s. Wow. Cheapest points possible in the system? No. But no question this works against the cash rates for an exceptional property.

 

[havoc315]

No it assumes you sell VGF in 2042 with a 4% annual increase in value. It’s the $42,542 in the 2042 column. Discounting that $42,542 in todays dollars it’s only worth like $6K. So it sounds like a lot, but because a it’s 20 years away… it’s not really that much of savings.

You’re off by quite a bit. Assuming the 4% inflation rate, the present value is about $19,900 —- more than triple your $6,000.

Which makes sense. Unless there is a complete and total collapse in the resale market… resale prices for resorts with 20+ years left should be the same in 2042 as they are today, adjusted for inflation.

You certainly can’t get 150 points for $6,000 today.

Now, you may be referring to lost opportunity cost. That brings a whole lot of other variables. But if you really get into the nitty gritty of lost opportunity cost, you find it’s better to just rent points than to buy most 2042 contracts. (plugged in some rough numbers, I got a purchase price of $130 per point will break even in 2042, versus renting points... so if you can actually get a contract at $110 per point, you save a bit versus renting points, over $130, you're losing money by buying a 2042 contract).

 

[njcoach24]

You certainly can’t get 150 points for $6,000 today.

I think this is the biggest thing of the entire discussion.

 

[Jlo85]

I'm using a 10% discount rate to adjust for opportunity cost/risk. 4% I think is too low.

The idea is if I have $6K today, is VGF or BWV a better value. I think they're relatively comparable if you consider the time-value of money. And my whole analysis is in comparison to renting at $23/point with 4% inflation.

 

[Brian Noble]

10% discount rate to adjust for opportunity cost/risk. 4% I think is too low.

4% might be too low, but 10% seems high---and chosen to get a particular answer.

The two that I've seen that are most defensible are the long-term rate of inflation (which still gives you some wiggle room and 4% is probably fine), or alternatively the after-tax returns of the SP500 (depends on where you look, but this after 15%-20% tax on the gain depending on income/state/etc. gets you something in the neighborhood of 6-7%).

 

[havoc315]

I'm using a 10% discount rate to adjust for opportunity cost/risk. 4% I think is too low.

The idea is if I have $6K today, is VGF or BWV a better value. I think they're relatively comparable if you consider the time-value of money. And my whole analysis is in comparison to renting at $23/point with 4% inflation.

At a 10% discount rate (which is too high IMO, but assuming it) -- If you look at the rental board right now, the highest rental rates are $18-$19 for the high demand properties. So assuming a 10% opportunity cost after inflation and after taxes (so you're assuming you would get a 15-20% return on investment), and assuming an inflation rate of 3% per year, my spreadsheet shows a breakeven point of about $111 per point.

At $19 2023 rental rate, 10% discount rate (after taxes), you get a break even point at the end of 2041 in the amount of $111 per point.
At $22 rental rate, 10% discount, you get a break even of $140
At a 7% discount rate, and $19 rental rate -- also a break even close to $140

Point being, once you discount for opportunity cost, it's very hard to save money on 2042 contracts. Paying between $110 and $140 per point, it's iffy as to whether it will save any money. Over $140, and you're losing under most scenarios.

Bit off topic, but by this analysis -- Direct contract prices really don't break even until about 30-35 years in. (which actually makes sense... Disney wouldn't actually be selling DVC if it was a loser for them. They are getting the benefit of the buyer's lost opportunity).

 

[havoc315]

4% might be too low, but 10% seems high---and chosen to get a particular answer.

The two that I've seen that are most defensible are the long-term rate of inflation (which still gives you some wiggle room and 4% is probably fine), or alternatively the after-tax returns of the SP500 (depends on where you look, but this after 15%-20% tax on the gain depending on income/state/etc. gets you something in the neighborhood of 6-7%).

Yes, I generally stick to around 7% in my analyses.

 

[Jlo85]

10% is pretty standard discount rate. It's the average annual return of the S&P 500. Tracking inflation alone does not adequately consider the risk and opportunity cost of spending a ton of money on an asset like DVC. Because in theory you could have parked your money in stocks for a 10% annual return.

 

[Brian Noble]

It's the average annual return of the S&P 500.

I prefer to use the after-tax return, since I don't get to (legally) keep all of it. And I don't have enough to invest in my fraternity brother's hedge fund to take advantage of the carried interest rule.

More's the pity.

 

[Jlo85]

I prefer to use the after-tax return, since I don't get to (legally) keep all of it. And I don't have enough to invest in my fraternity brother's hedge fund to take advantage of the carried interest rule.

More's the pity.

Fair enough, though I think it's fair to build in more for risk since I think DVC is a riskier purchase than stock, personally.

 

[havoc315]

10% is pretty standard discount rate. It's the average annual return of the S&P 500. Tracking inflation alone does not adequately consider the risk and opportunity cost of spending a ton of money on an asset like DVC. Because in theory you could have parked your money in stocks for a 10% annual return.

Yes, but when analyzed opportunity cost, you have to return that discount rate for taxation. So a 10% return on the S&P, but pay a 30% marginal tax rate... and the return is 7%.

 

[njcoach24]

Disney wouldn't actually be selling DVC if it was a loser for them.

This is the truth.

Also, very interesting views in this replies. Love it.

 

[Jlo85]

Yes, but when analyzed opportunity cost, you have to return that discount rate for taxation. So a 10% return on the S&P, but pay a 30% marginal tax rate... and the return is 7%.

Even at 7%, the difference isn't that stark (below). Maybe saving a bit more with VGF, but VGF is also more expensive to stay at so :

Resort

NPV

IRR

Points

Price / Point

Estimated Closing

2023 Dues

Dues Inflation

Expiration

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

Boardwalk

4,859​

17%​

50​

$110​

$500​

$8.53​

3.1%​

2042​

-$5,277​

$756​

$790​

$826​

$863​

$902​

$943​

$985​

$1,029​

$1,075​

$1,124​

$1,174​

$1,226​

$1,281​

$1,337​

$1,397​

$1,459​

$1,523​

$1,591​

Grand Floridian Resale

6,344​

16%​

40​

$140​

$500​

$7.33​

3.1%​

2064​

-$5,473​

$655​

$683​

$714​

$745​

$778​

$812​

$848​

$885​

$924​

$964​

$1,006​

$1,050​

$1,096​

$1,144​

$1,193​

$1,245​

$1,299​

$1,356​

$11,798​

 

[havoc315]

Fair enough, though I think it's fair to build in more for risk since I think DVC is a riskier purchase than stock, personally.

Riskier? Eh. Let's put it this way, DVC is a safer floor, with a likely much lower ceiling.
There is high confidence that the purchase will have a value equivalent to the resort stays through the duration of a contract.
And when analyzing opportunity lost (which I agree should be considered), we shouldn't be comparing: Purchase of DVC versus locking the money into the stock market for 30 years.
It's purchase DVC versus investing the money and taking annual withdrawals to pay for vacations.
I dare say that the stock market is much more volatile than DVC values.
If I purchase 150 points, enough for 1 week in BWV -- In 3 years, it will still be worth 1 week at BWV.

So yes, the stock market has a much higher ceiling than DVC re-sale. But I wouldn't say it's "less risky."

I did create a spread sheet that assumes annual withdrawals to pay for point rentals. It does become quite variable depending on rental rates, inflation rates, discount rates, etc. But generally speaking, it makes most of the shorter contracts into questionable purchases from a value proposition. But then again, re-sale prices of the 2042 contracts have been dropping a lot lately. Contracts that were $140 a year ago now seem to be going for $110. So maybe there is an ongoing correction.

 

[thank_the_phoenicians88]

Assuming I pass ROFR, I'm in for 150 BCV points at $125 a point. My logic was pretty straightforward with no fancy spreadsheets haha. Cash rates at BCV are crazy expensive and renting is a pain / almost impossible to achieve when we travel. One popular retail rental site shows 24 unclaimed rentals for 7+ months out and those will likely go unfilled based on current availability. Between now and 2042, I will have 3000 points to use, which would cost (in today's dollars @ $23 a point) $69K. At $8.17 a point, I'm looking (all in - again today's dollars) at spending $42K ($19K for points + $23K for dues). I didn't account for investing the principal and just paying cash rates - just didn't seem realistic that I would pull in anywhere near the return to justify cash rates. So simply math (in my head) suggests that owning is better than renting, which is better than cash rates.

For the money, I agree it would probably make more sense to spend the money at a resort beyond 2042 and book at 7 months, but periods I now want to travel in are really had to come by. And yes I can walk the reservation, but that is stressful

2042 feels perfect. It is still 19 years away - which is a long time - and by then my kids will be in college and my desire to use the pool at BCV will diminish. For DVC, I think "buy where you want to stay" is one of the most important factors.

 

[havoc315]

Even at 7%, the difference isn't that stark (below). Maybe saving a bit more with VGF, but VGF is also more expensive to stay at so :

Resort

NPV

IRR

Points

Price / Point

Estimated Closing

2023 Dues

Dues Inflation

Expiration

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

Boardwalk

4,859​

17%​

50​

$110​

$500​

$8.53​

3.1%​

2042​

-$5,277​

$756​

$790​

$826​

$863​

$902​

$943​

$985​

$1,029​

$1,075​

$1,124​

$1,174​

$1,226​

$1,281​

$1,337​

$1,397​

$1,459​

$1,523​

$1,591​

Grand Floridian Resale

6,344​

16%​

40​

$140​

$500​

$7.33​

3.1%​

2064​

-$5,473​

$655​

$683​

$714​

$745​

$778​

$812​

$848​

$885​

$924​

$964​

$1,006​

$1,050​

$1,096​

$1,144​

$1,193​

$1,245​

$1,299​

$1,356​

$11,798​

I'd say VGF being $11,000 cheaper is pretty stark. Especially since VGF is typically more expensive to stay at!

Thing is, once you are looking at opportunity cost --- Most contracts won't break even for 15-25 years. So the only contracts that start to make sense, are the non-2042 contracts. (Not saying people shouldn't stay at BWV.. just that it would make more sense to either just rent points).