What is the Cash Equivalent of One Point?

[Alice-in-wonder]

Has anyone figured this out? If you bought 100 pts for 108.00 a pt and used them for 50 years? How much money do you save ? TIA!

 

[Mtnman44]

It is more complicated than a simple multiplication problem. You are comparing a dollar amount today vs. the value of those points in 50 years.

You can only estimate based on certain assumptions.

For example, just for illustrative purposes, Let's say that today those 100 points get you one week in a DVC studio. The market value today of that week in a studio is, for example, $1,750 ($250x7) Note that these are made up values, just to compare.

Now, assuming we want to use DVC each year for the next 50 years, and we want to know how much DVC is saving us vs. simply paying for the studio each year, we need to make certain assumptions of how much the cash price of the studio will be in the future.

If we assume that each year, the cash cost will go up 2.5%, we see that by year 50, our week stay will cost $5,870.

Keep in mind that DVC costs more than just the initial purchase price. There are yearly maintanence costs and property taxes. If we assume those go up each year by about 2.5%, we can then estimate each year's annual cost, add those to the purchase price, and come up with a grand total net savings, based upon our assumed inflation values of course.

If you are curious, using the above simple example, if today's maintanence fees for the 100 points are $451 per year, this brings the total cost of DVC, including purchase and 50 years of ownership to 54,765. The cost of paying cash for the week each year for 50 years comes to 170,597.

But wait, there is more! This isn't a fair comparison yet as we have not accounted for the $10,800 DVC purchase price that you aren't paying up front if you simply pay cash every year for your stay. Instead of buying DVC, if you invested that at 5%, you'd have enough money by around year 38, to pay cash for your final 12 years, meaning your real cash cost over the 50 years would be around $109,000.

However! If you were able to maintain a 12% average rate of return (compounded annually) on your original 10.8k balance, by year 23 or so, you'd have enough cash built up to pay for the remaining 27 years of your stays, meaning up to that point, your costs will only have totalled about $53,500.

Confused? so am I.

P.S. Here is the kicker. Instead of buying DVC, if you invested that 10.8k and achieved a 12% average rate of return, and didn't spend it on anything, in 50 years you'd have 2.5 million dollars. remember that things cost 3x more then than today, but that is still a lot of money. This is one way to calculate the "true cost" of spending the money today.

 

[rcchello]

P.S. Here is the kicker. Instead of buying DVC, if you invested that 10.8k and achieved a 12% average rate of return, and didn't spend it on anything, in 50 years you'd have 2.5 million dollars.

If someone tells you they can invest your money and you will get 12% a year I suggest you run the other way.

 

[Alice-in-wonder]

That didn't answer my question!

 

[vicki_c]

That didn't answer my question!

There is no one answer to your question. Different members look @ it differently.

Some do straight calculations, some factor in net present value, some look @ the opportunity cost of money not invested. Some people finance, some people pay cash. And so on and so on and so on.

And by "what do you save" -- that's even more subjective. Compared to what? Booking a DVC room for cash? Rack rate? With a discount? Booking just another Disney resort room that you might realistically book if you were paying cash?

Many people consider "a point" to be worth around $10 because that's the going rate for renting points right now - but that doesn't factor in anything but the rental market forces.

It's almost not a stretch to say that the answer to your question could be different for almost every member!

 

[Alice-in-wonder]

My husband wanted to know the cash equivalent....that's all.

 

[rlovew]

Well if you purchased when you actually got 50 years worth of use then you paid $2.16 per point per year. I would then add the dues to that amount so if you purchased at Bay Lake next years dues are 3.98/point so each point next year is $6.14. Now this only works if you plan on using all your points for 50 years and don't have a loan.

If you wanted to say you were finished paying for them after 20 years then for the first 20 years they would be $5.40 plus dues per point/per year. After 20 years you would then consider the value of your points as the prices of dues per point.

 

[kansas_wazzu]

I think of timeshare ownership like a car purchase. I like to buy them new (personal preference), they lose value once I take ownership, I enjoy it while I own it, it requires maintenance and then I sell it when I no longer want it. Or, I take a taxi (hotel) when I want it. More expensive, but I only use it when I need it.

For me, 50 years is too long to think about. However, I think that most people think that the "break-even" is 5 - 7 years. After that, it is maintenance.

At least with DVC, one has an idea of the resale value, versus my '07 CRV.

Ok, maybe this is a bad analogy, but it works for me!

Best!

 

[staceymay00]

Maybe this is what you are looking for:

$108 per point divided by 50 yrs = a cost of $2.16 for every single point
Let's pretend MFs this year for these points are $3.84 per point

Your cost per point this year is the sum of those numbers, or $6.00.

Keep in mind that MFs go up each year, so that component of the equation will increase (as will cash rates for rooms), and this method completely ignores opportunity cost of your initial investment and MFs should you invest that money instead of spending it on DVC.

So, let's say you make a reservation that uses 100 pts. You could look at the equivalent dollar cost as being $6.00 x 100pts, or $600. You can then compare that amount to what you would spend paying cash without DVC.

This happens to be the method I use to figure out an equivalent cost of potential DVC stays, though I know it ignores some of the true cost. But we likely would not have invested our initial buy in amount, at least not in something long term earning much more than inflation, and what we spend on MFs each year we would have spent paying cash for rooms. While it is not technically correct it works for me, but not for others.

Mtnman44's post provides a more accurate method for determining true long term cost of DVC, although I would not assume 12% average rate of return. Maybe he has some investing secrets he'd like to share.

ETA: Oh yeah, one important thing I forgot to mention...you have to add interest cost if you finance. My example assumes paying the buy in cost up front.

 

[ScottOKW2K]

I actually use 3 different estimates for determining the value of my points:

1. Purchase cost of contract / total years of contract + maintenance fee per year. For my contracts this is $6 ~ $7 per point.

2. Current rental rates , which are around $10 ~ $12 per point.

3. What it would cost in cash to book the same room at a non-discounted rate. This will usually be around the $25 / point range. This is valid on some trips ( like the one in 2 weeks ) but less valid on others depending on what discounts are offered by Disney.

Pick your number. The true value of my points to me and my family is that without owning DVC we would not be able to stay at the level and quality of accommodations on-site at Disney that we enjoy.

 

[Mtnman44]

The 12% figure is often used in these hypotheticals as it is pretty close to the average rate of return over any 30 or so year period in the history of the U.S. Stock market. If I recall correctly anyway.....

 

[Mtnman44]

You asked : if I buy today at x and use it for the next 50 years, how much do I save?

Not sure how else to answer it.

That didn't answer my question!

 

[Deb & Bill]

There is no cash value for a point. Just ask DVC. That's why they don't allow compensation for transfers.

 

[bookwormde]

If you "planned" to pay rack rate for the next 50 years for DVC accomidaitons and you pay cash and figure the lost income from the $ you committed to the purchase (Say at 3%) then you wil be in the $9-12 range if you purchse from DVC and $7-9 if you purchase resale. If you finance then you can be in the $12 to 20 range.

So compared to rack rate you could save 40-70% for resale, 20 to 50 % for DVC purchase and not much if you finance (at least until the finance charges end).

As times goes on it improves a little since puchase costs are constant, but since maintenance is 50 to 80% of the cost of the yearly points it is only a prtial gain.

If you were to buy 100 points at AKV for 10800 and add maintinance fees for 48 years in todays $ it would be a total of $34800 then add lost income on a dericiating basis so about 7200 for a total of 42k. 100 points will get you a 6 studio nights in a standard view in summer which is about $300/nt so a total of $86,400.

Of course no one pays rack rate (at least those who read disboards)!

bookwormde

 

[ssawka]

Well there are many ways to answer this, but when I figured it out it came to somwhere between $10 and $11. The method I used was to take the buy-in amount and add to that the total accumlated projected MFs, assuming a 3% increase per year. Then divide that amount by the total number of points (50 X 100). For example, if we use BLT's MFs for your scenario, you get the following:

Number of Points: 100
Price per Point (initial): $108
Initial Buy In: $10,800

MFs Per Point Total MFs (year)
2009 $3.67 $367.00
2010 $3.78 $378.01
2011 $3.89 $389.35
2012 $4.01 $401.03
2013 $4.13 $413.06
2014 $4.25 $425.45
2015 $4.38 $438.22
2016 $4.51 $451.36
2017 $4.65 $464.90
2018 $4.79 $478.85
2019 $4.93 $493.22
2020 $5.08 $508.01
2021 $5.23 $523.25
2022 $5.39 $538.95
2023 $5.55 $555.12
2024 $5.72 $571.77
2025 $5.89 $588.93
2026 $6.07 $606.60
2027 $6.25 $624.79
2028 $6.44 $643.54
2029 $6.63 $662.84
2030 $6.83 $682.73
2031 $7.03 $703.21
2032 $7.24 $724.31
2033 $7.46 $746.04
2034 $7.68 $768.42
2035 $7.91 $791.47
2036 $8.15 $815.21
2037 $8.40 $839.67
2038 $8.65 $864.86
2039 $8.91 $890.81
2040 $9.18 $917.53
2041 $9.45 $945.06
2042 $9.73 $973.41
2043 $10.03 $1,002.61
2044 $10.33 $1,032.69
2045 $10.64 $1,063.67
2046 $10.96 $1,095.58
2047 $11.28 $1,128.45
2048 $11.62 $1,162.30
2049 $11.97 $1,197.17
2050 $12.33 $1,233.08
2051 $12.70 $1,270.08
2052 $13.08 $1,308.18
2053 $13.47 $1,347.42
2054 $13.88 $1,387.85
2055 $14.29 $1,429.48
2056 $14.72 $1,472.37
2057 $15.17 $1,516.54
2058 $15.62 $1,562.03
Gross MFs (Life) $43,005.34
2009 MF Discount ($152.92)
2059 MF Discount ($938.52)
Net MFs $41,913.91

Total Price Paid ($10,800 + $41,913.91) = $52,713.91
Total # of Points: 5000
Price per point: $10.54 Per Point

As stated by PPs, this does not take into account Time Value of Money. Also, the 2009 and 2059 MF discounts are due to proration of mainetenance fees. Much of these calculations are based on the resort since the resort determines the MFs.

 

[psac]

If you haven't noticed by now, it's obviously not a simple calculation. It depends on what property is your home property, what type of room you'll use the points on, how much you pay per point, how long the property is under contract, what the use year is (and what points you get the first year based on that), etc.

If buying BLT new at that price or any other property resale (for lower), expect to break even in 5-7 years, as others have said, or longer (10 years?) if you finance. If you FOR SURE will go every year during that time, it will definitely be worth it. After that, the low maintenance cost will save you A LOT over paying out of pocket.

That is also assuming 100 points is enough for a stay each year at your home property for as long as you would want to stay.

 

[rcchello]

Per point worth base in Weekday first two weeks of February

Feb OKW Studio $305 / 13 points = $ 23.46/point
Feb OKW One Bedroom $415 / 24 points = $ 17.29 / point
Feb OKW Two Bedroom $570 / 32 points = $ 17.81 / point

Cruise Oct 9
8d oceanview stateroom $959 per person/88 points = $10.88 / points.


These are all based on quotes from the Disney Website today. The worth of a point depends on what you use it for and what current deals exist. There are probably ways to make your points worth more or less depending on how you use them.

PS These are estimate, since I did not research if the $$ prices on the website include different things or taxes and fees. For illustritive porposes only. Your mileage may vary. Legal Disclaimer goes here - I really don't know my * from a hole in the ground.

 

[staceymay00]

The 12% figure is often used in these hypotheticals as it is pretty close to the average rate of return over any 30 or so year period in the history of the U.S. Stock market. If I recall correctly anyway.....

I thought it was more like 8-10%, but maybe I am thinking of a diversified portfolio with some bonds and cash, not just stocks. I would love to see 12% average annual return over the next 30 years, though!

 

[Mtnman44]

I think the 8 to 12% range is reasonable, with 8% being on the very low and with 12% perhaps being toward the optimistic. Remember this is hypothetical and there are lots of variables that would affect an investor.


At the risk of straying too far from the topic, I'll just post this chart I found of the historical s&p 500 returns.

I thought it was more like 8-10%, but maybe I am thinking of a diversified portfolio with some bonds and cash, not just stocks. I would love to see 12% average annual return over the next 30 years, though!

 

[tecodis]

Wow - Don't ever ask that question again!