Value of a DVC Point / Considering Purchase

[FamilyGuy]

Hi All,

We are new to the DVC thing but have taken in a lot of information in the last few days from our open house tour @ SS, as well as the seemingly endless info here and also some info from a couple of re-sale sites.

I had a question regarding the value that everyone seems to place on the points. For the purposes of renting and / or trading the going rate seems to be $10.00 per point. I would call this an approximate "retail value" per point.

For me to approximate a wholesale value per point if I take the upfront per point price of $85.00 per point and divide it by the 49 yr term (at SS), then add the per point annual dues that would give me my net cost per point, correct? IE:

$1.73 - $85.00 (per point) divided by 49 (years)
$3.81 - the cost of annual dues per point
$5.54 - the total cost to me per point

Other than interest (if the original points were financed), are there any other costs I am missing in my calculation?


Are there any negatives or downsides that any DVC members would point out to someone considering purchasing?

Also, trying to decide between 150 and 200 points, I think we might need a little more than 150 points per year, and 200 would probably be at the top of our budget. Perhaps we may settle on 175 ponts to start. Any thougts on the number of points to start out with.

Thanks in advance for any input!

 

[spiceycat]

DVC when they start offering the back buy a few years ago - set the value at $10 a point - I think then the renting rate was $8 a point.

Others will be along to tell you it is $11, or $12 or even $15 a point. You decide what it is for you.

you are leaving out the cost of money - but in this economy - that is hardly worth nothing - some say it should 10% regardless - but it hasn't been 10% is quite some time and I am not expecting it to be in the future.

 

[bongo59]

when i rent points i use 10 a point because it places the value below rack rates and above true DVC rates when you own and therefore makes the transaction have appeal to both the renter and to me.

 

[mydogdrew]

I would suggest that you make a mistake by valuing the final year the same as the first year. You should consider valuing the points the same as you would $. For example, a dollar today will double in value 4 times (at 6%) over the next 48 years (i.e. $16 in 48 years). It stands to reason that the future points should be discounted back to their value relative to todays points to make a comparison. For example, again using 6%, the points for the last 12 years discounted back to today would be worth approximately the same as 1 current years points. I would suggest that you can purchase a nice resale with banked points now to more than offset the "value" of the extra 12 years for much less $. Buy SSR if it's the resort for you but don't pay extra for the 12 years alone. The 12 years will become more valuable over time but they simply are not worth a premium today.

 

[bongo59]

we added on at SSR for the 12 yrs.............but for this reason.........after all my contracts run out at the other resorts we wont have anything left so we bought at SSR like you would stagger maturities of a bond portfolio........maybe it is not worth the premium now but it will be over time just like buying OKW was in 1991. We got our biggest upside in the first two yrs of OKW with all the throw ins and lifetime passes and all. One can never predict what will happen over time but getting in early gives you more time to get any percieved value. That is how i viewed it prior to adding on.

 

[bcvillastwo]

To the original person who posted this thread, I think the approach you used to derive the cost per point is just fine. Yes, you could have factored in opportunity cost as another poster suggested and there are other things you could do as well but if you are just trying to come up with a resonable figure what you did is fine.

Now, if you might also consider investing the money you are considering putting into Disney then you should consider using some of the other factors that have been suggested.

Keep in mind, this isn't an investment. It's a long term lease. Fortunately, it's got the Disney name plate and fortunately Disney keeps the property up very well (considering the traffic the flows through these properties). That means, that up to this point buyers have been able to sell and generally recoup what they have put into it. Which isn't the case with most other time share properties. The advantage of most other time shares is that you "own" it.

I wish you well on your decision and watch out for analysis paralysis.

 

[DebbieB]

I would start with 150 points and then do an add-on. Sometimes they have special perks for add-ons. Plus you can sell the add-on separately if you choose.

 

[erikthewise]

No, the method you used to evaluate points is badly flawed.

Regardless of whether or not you finance, you have to take into account the "time value of money" (or points). Points you receive in the future are not worth as much as points you receive today, and the further in the future they are, the less they are worth. (Would you trade your 2005 points for an equal number of my 2035 points? Of course not!)

In order to quantify this, you have to choose an interest rate. Think of it as the interest you could earn if you sold your points (say for $10/pt) and invested the money. For the sake of argument let's choose an interest rate of 4%.

Then the 49 points you get for your $85 over the next 49 years are not worth 49 of TODAY's point, but only about 22.2 of today's points. So your upfront cost is $85/22.2 = $3.83 per point, not $1.73.

This answer is sensitive to the interest rate you choose, so the "true" answer is unclear, but $1.73 is clearly far too small. One can question whether it makes sense to try to evaluate the investment over such a long period of time, but if you insist on doing it, this is the way it should be done. You are certainly not alone in taking the "divide by number of years approach", but any accountant will tell you this is wrong.

(The formula used is Sum(1/(1+r)^k, k = 0..48), where r is the interest rate expressed as a decimal.)

 

[Dean]

I'd agree you need to account for the time value of the money and/or the interest if you finance. You should also consider HOW you will use DVC. If you will use it for 5 nights avoiding weekends, you will do well. If you do more weekends or use the other trade options much at all, you will quickly come to a situation where you are far behind just paying cash and maybe renting points from a member when you do decide to go.

 

[FamilyGuy]

I would start with 150 points and then do an add-on. Sometimes they have special perks for add-ons. Plus you can sell the add-on separately if you choose.

Thanks to all above for the input and info.

If I choose to do only 150 points now (as I would guess the majority do at the outset), DVC offers promotions to add points on later?
I understand that you can add the points in 25 point increments if paying cash, or if you wish to finance them through Disney, you add a minimum of 50 points. That's about all I know about add on points. Can you tell me how it works if you add on from a different resort? If I have 150 SSR points and say 50 OKW or BWV, can I use the 11 month window for any more than 50 points @ OKW or BWV?

Do they run discounts - what other "perks" may they offer? I found it interesting that you can sell the add on points seprately, maybe it's better to buy them seperately then. I guess I could buy add on points as a resale down the line if I wanted to.

 

[JimC]

FamilyGuy,

Your original calculation for wholesale is fine. Adding in time value, while a technical improvement, is really not all that germain unless you used savings to purchase the points. Whatever discount rate you used is likely to be wrong anyway.

We used cash flow to buy points so we speant money on points we would have speant elsewhere. Over the contract the upfront payment will be much less important for total cost due to the rising maintenance fees.

We use your wholesale value to consider whether we want to use DVC for other resorts outside of DVC. This past year the points were less than the AP rates we could get at AKL and Yacht Club. GC at DL in 2005 was a breakeven to the best deal we could find. In 2002 the opposite was true (AP codes were a better deal than using DVC points).

We could have improved the deal if we rented the points and used cash. But renting is more work and the difference is not sufficient for the money involved -- in our view.

Hope you and your family enjoyed your first trip to WDW. Good luck with your DVC decision.

 

[Scotch]

You should also consider HOW you will use DVC. If you will use it for 5 nights avoiding weekends, you will do well. If you do more weekends or use the other trade options much at all, you will quickly come to a situation where you are far behind just paying cash and maybe renting points from a member when you do decide to go.

We always utilize weekends when we travel. So if we want to use a full 7 day week every other year or every year in a 1 or 2 BR unit it may not make sense to buy DVC? You would recommend just paying cash or renting?

 

[goofy4dvc]

Thanks to all above for the input and info.

If I choose to do only 150 points now (as I would guess the majority do at the outset), DVC offers promotions to add points on later?
I understand that you can add the points in 25 point increments if paying cash, or if you wish to finance them through Disney, you add a minimum of 50 points. That's about all I know about add on points. Can you tell me how it works if you add on from a different resort? If I have 150 SSR points and say 50 OKW or BWV, can I use the 11 month window for any more than 50 points @ OKW or BWV?

Do they run discounts - what other "perks" may they offer? I found it interesting that you can sell the add on points seprately, maybe it's better to buy them seperately then. I guess I could buy add on points as a resale down the line if I wanted to.

Your understanding about the financing is correct.

I'm not exactly sure about the recent incentives. I think DVC offered some APs or free days with add on of at least 50. A good reason to have more than one contract is in case you need to sell some off at some point or if you want to divide some between heirs.

However, if you have contracts at different resorts, the 11 month rule applies at the resort that contract is at. For example, if you had 150 points at SSR and 50 points at BCV, you could only use 150 points at SSR at the 11 month window and the 50 points would be good at the 11 month window at BCV only. If you need a ressie that took 175 points, you wouldn't be able to do it at the 11 month window. But what I have done is book what I could with my largest contract and book the rest at my second "home", then at the 7 month window I cancelled the second one and added on to the first with the points from the second contract. This will probably only work if you go at slower times of the year, which we always do. You could also waitlist at the 7-month window. Another option is to borrow the remaining points from the next year from the home resort. You would use the 150 points at SSR, then borrow 25 points from next year's allotment of SSR points.

We have 150 at VB, 100 at BCV and 100 at VWL and always seem to make it work.

Good luck.

 

[Dean]

We always utilize weekends when we travel. So if we want to use a full 7 day week every other year or every year in a 1 or 2 BR unit it may not make sense to buy DVC? You would recommend just paying cash or renting?

It still might work but you should run the numbers based on your situation and preferences. The problem is that DVC is more expensive for weekends in general whether owning or renting. How about doing points for weekdays and cash for weekends, a cheaper way to go most of the time.

 

[beacher]

Hi FamilyGuy-

I think your valuation approach is fine - I used the same but considering the lower number of years at BCV/BWV it came to more per point (we purchased in 2003 when points were already up there compared to earlier buyers...) More detail may be more precise, but I also weigh the increased cost of points over the years against the increase in value I'm receiving. Check cash rates for a 1BR or 2BR through Disney and compare that to a per point value. Add the 11.5% hotel tax and assume annual price increases for the cash rates and see what you get. It's a good value for those rooms - and you're getting better accomodations than most luxury rooms when you consider space and kitchen/w-d. The point structure for DVC rooms is relatively fixed - the total number of required points cannot increase at a resort - only reallocated between seasons or weekdays / weekends.

Which brings me to my other point. I can't say what the future holds, but I've only owned for a year and have seen the purchase price per point go way UP. If you think you will need 200 points (we did 2 add-ons within 6 months, so if you're already thinking along those lines consider it a resounding YES) my simple advice would be to buy them now if you can. Even if there are perks available later, the price increases per point from Disney have been substantial. We saved on our add-on contracts by buying resale, but I don't know if there is much availability on the resale market yet for small SSR contracts.

Congratulations to you, whatever decision you make. DVC is one of the best things we've ever done, and you'll find many seconds to that statement on these boards.

 

[vernon]

I'm another one firmly in the camp that you HAVE to take into account interest for any calculation. It doesn't matter if you choose whatever the loan rate is ( if you borrow to buy the points) probably between 8-10 % or what you could earn if that money is already available to you, but it would otherwise be invested (probably more like 4-5%).
Taking interest into account a realistic cost per point (per year) is going to be somewhere between $7-12 per point depending on if one has to finance or not. IMHO the wholesale value is very near to and at times over the retail price. There are a number of reasons for this, mostly it's because the majority of those that rent points are not looking to do so in order to make money on the whole transaction, simply that temporarily they can not use some/all of their points at that time and want to receive something for their initial outlay. There are some people who are doing this for it's financial return and generally they either are working at a low profit margin at the moment because they realise they will earn more $ for their points in the future, as rack rate prices increase, or they use some more slightly underhand tactics IMHO to maximise their rental income.

Rental costs for points is always going to be mostly driven by the real $$ costs of staying at Disney resorts. If the cash price for rooms at say a moderate is $120 a night (due to WDW discounting), you're going to struggle to get much more than that for a studio. If Disney hits some really busy times and the room costs start moving up, with less discounts available then renting DVC points is going to be a lot more attractive and supply/demand is going to push up the "going price" for DVC points.

 

[Scotch]

Taking interest into account a realistic cost per point (per year) is going to be somewhere between $7-12 per point depending on if one has to finance or not. IMHO the wholesale value is very near to and at times over the retail price. . . .

So why should anyone buy now, then? We thought we'd decided (finally) that we should buy DVC. But of course the fact that I can readily rent points from owners at DIS, for example, for $10 a point (and sometimes less) year round continues to give me pause (though not DH). I figure that comparing buy in cost + m/fs vs. renting via DIS members (as opposed to Disney) means it'll take roughly 14-15 years to reach the break even point, and that does NOT take into account possible loss interest -- I just figure it (any interest earned) would be minimal as we would be using discretionary income for vacations that would otherwise sit in a very very low interest savings account. Sounds silly to buy in if it'll take that long to break even, huh? Of course I was calculating useage of 7 day weeks and I had not, as Dean suggests, attempted to figure out our "cost" if we only used DVC points for Sun to Thurs. and paid cash for weekends. (That seems like a real hassle and defeats the purpose of owning, it seems, as it sounds like discounts are not even announced until a couple of months in advance so we wouldn't be able to settle our vacation plans until that close to the travel date?)

 

[jcodespoti]

If I have 150 SSR points and say 50 OKW or BWV, can I use the 11 month window for any more than 50 points @ OKW or BWV?

No. You will have two contracts. So if you needed 159 points to stay at SSR you could not book the entire trip until the 7 month window.

I would buy the 175-200 points now.

A negative (if you want to call it that) of DVC is that you should use it for DVC stays only. It does not make financial sense to buy DVC to trade out
constantly to II. You can do it on occasion, but from purely a monetary stand point it would not be worth it.

Joe in CT

 

[erikthewise]

So why should anyone buy now, then? We thought we'd decided (finally) that we should buy DVC. But of course the fact that I can readily rent points from owners at DIS, for example, for $10 a point (and sometimes less) year round continues to give me pause (though not DH). I figure that comparing buy in cost + m/fs vs. renting via DIS members (as opposed to Disney) means it'll take roughly 14-15 years to reach the break even point, and that does NOT take into account possible loss interest -- I just figure it (any interest earned) would be minimal as we would be using discretionary income for vacations that would otherwise sit in a very very low interest savings account. Sounds silly to buy in if it'll take that long to break even, huh? Of course I was calculating useage of 7 day weeks and I had not, as Dean suggests, attempted to figure out our "cost" if we only used DVC points for Sun to Thurs. and paid cash for weekends. (That seems like a real hassle and defeats the purpose of owning, it seems, as it sounds like discounts are not even announced until a couple of months in advance so we wouldn't be able to settle our vacation plans until that close to the travel date?)

I'm sympathetic to your hesitation. When we bought at $75, I was figuring breaking even (compared to renting points) at 10-12 years, which was good enough for me. But if I ran those same calculations with a cost of $95, it's not clear that you'd ever break even compared to renting points.

There are other factors to consider. One is that points may not always rent for $10. If the rental cost goes up to $12, that makes a big difference!

But the most important thing was that I saw having to rent points EVERY year as a major pain. I didn't want to be always working through a middleman, negotiating and searching for what I could get with a single phone call as a member. I didn't want to be a parasite living off the leftover points of others; I wanted to be in control. And renting points would make it too easy to say "not this year" or just let it slip by. Part of the reason for making the commitment was so we would HAVE to plan a vacation each year.

No. You will have two contracts. So if you needed 159 points to stay at SSR you could not book the entire trip until the 7 month window.

In principle. But in practice couldn't you just borrow the extra 9 points from the next year of the SSR contract and still book at 11 months?

 

[elfbo]

One thing that I am doing, now that I have purchased, is keeping a spreadsheet. This spreadsheet lists and totals the DVC cost of rooms we stay in so that I can determine when we reach Rack Rate coverage of our price and maintance fees. I also have another column with the room type we would normally stay in with a percentage off for discounts (in this case 20% off a moderate becasue of the AAA discount). This way I dont have to guess the valuation of the dollar or anything because I am taking Disney prices as they increase and applying as is. I am factoring in 2 room types because its nice to see how much the rooms are worth. But I know that If i hadnt joined dvc I would be staying at lower priced rooms so that gives me a closer real price to my savings over time.

The thing im not factoring in is the fact that we will be going more often because we can!