What risks in DVC?

[ThreeTiggers]

What risks am I getting myself into by buying into DVC? For instance, could the maintenance fees increase so much it would be better to pay rack rates? What other worries did you have to overcome before deciding to make your purchase?

 

[tjkraz]

For instance, could the maintenance fees increase so much it would be better to pay rack rates?

Probably not. By law the dues are virtually limited to the actual operating costs of the resort. So, as the costs of providing everything from theme park transportation to housekeeping services increases through the years, it will impact both DVC member dues and the cash resorts.

 

[RAD]

What risks am I getting myself into by buying into DVC? For instance, could the maintenance fees increase so much it would be better to pay rack rates? What other worries did you have to overcome before deciding to make your purchase?

If I remember correctly, fees increases are limited to 15% per year, which if done could really mess things up. I also seem to remember that there could be a special assesment to cover things like hurricane losses (I seem to remember some VB owners talking about that this past year).

 

[Lasrnw]

It's Disney, they are not going to have tens of thousands of people walking around unhappy. Buy with confidence because they'll still be here in 49 years - will RCI?

 

[jade1]

You risk a lot of cash for park tickets and food from all those GREAT trips you will now want to take.

 

[poohj80]

Our biggest risk has been loving DVC so much we want to buy more points!

 

[mydogdrew]

You'll probably conclude that the dues risk is managable - I certainly did. However, it is a concern. Most here will point to the fact that the costs that influence maintenance fees are the same that influence the cash rooms. I am a bit more skeptical since we are a captive group of owners. Ultimately, once you own you will subsidize these costs. Cash room prices are ultimately driven by market forces, not underlying costs. In a given year the cash price of a room at Disney might either increase or decrease greater than inflation. There is a saturation point where Disney can't build another hotel room and bring in incremental revenue. Let's face it, every new DVC member is potentially one less cash paying customer. If Disney builds too much then cash prices will decrease while our dues increase.

 

[dianeschlicht]

Mydogdrew, I'm not sure I follow that logic. Maintenance fees are tied to taxes, insurance, physical plant, service personel, etc. While those things are also expenses for the cash paying customer, Disney knows the DVC rooms fill themselves and only add to their revenue in teh parks by filling them with folks who WANT to be there. DVC and WDW resorts are not that connected to each other in the financial sense.

 

[DrBond007]

I think the risk or maybe better classified as downside is the advance notice needed to plan for your vacations. This may not always work around work schedules, etc.

 

[mydogdrew]

Mydogdrew, I'm not sure I follow that logic. Maintenance fees are tied to taxes, insurance, physical plant, service personel, etc. While those things are also expenses for the cash paying customer, Disney knows the DVC rooms fill themselves and only add to their revenue in teh parks by filling them with folks who WANT to be there. DVC and WDW resorts are not that connected to each other in the financial sense.

It is not appropriate to assume that just because Disney and DVC both share the same inflation risk, that room rates and maintenance fees move in concert. As members, we are committed to paying this inflation factor in our dues for many years to come. Cash rooms will always sell for what they are worth at that time. Therefore, there is an inflation risk associated with DVC. You can argue that cash rooms could increase even more than inflation which of course is true. However, the growth of DVC has to have some impact on cash room prices. Ultimately, the risk is that Disney absorbs some of the inflation hit for cash rooms (to fill them) and we (DVC) pay all of the inflation in our dues. Not a prediction - just a risk.

 

[dianeschlicht]

It is not appropriate to assume that just because Disney and DVC both share the same inflation risk, that room rates and maintenance fees move in concert.

Yes, that is what I am saying..."it is not appropriate to assume that". There are significantly different maintenance issues with a timeshare versus a resort hotel.

 

[jarestel]

I wouldn't be so quick to dismiss any element of risk. DVC owners will always be expected to bear the operating costs of the timeshare. However, regular resort rooms are discounted as need arises in order to fill them. I don't think one can automatically assume that inflationary increases in DVC will equate to similar increases in the WDW owned resorts. Historically, Disney has shown it is more than willing to subsidize costs in order to fill the resorts.

 

[jade1]

Put it this way, a 10% jump in dues (which is big) on a 250 point contract is app $100. 250 points is at least 2 trips a year for many of us. We spend a minimum of $7200 $3000 in transporation, $1200 in park passes, $2000 in food etc etc etc. If $100 is a risk you may not want to buy.

 

[dianeschlicht]

When we purchased, we looked at DVC as a "prepaid vacation" in wonderful accommodations at a place we love to vacation for 45 years (when we purchased). The MF's are certainly less than the increases we would expect to pay if we owned our own private vacation property, plus we would have all the physical upkeep on it. Disney's reputation made this a no brainer for us. Now, nearly 9 years later, we have only one regret, and that is that we didn't buy in right away when we first heard about DVC. We waited a few years until we could pay for it without using a loan. During that 9 years, we have seen MF's actually go down some years, and our biggest increase was about 5%. That's a heck of a deal, in my book.

 

[mydogdrew]

Yes, that is what I am saying..."it is not appropriate to assume that". There are significantly different maintenance issues with a timeshare versus a resort hotel.

I really don't follow your point. What I am have said is that if your are evaluating DVC for your risk tolerance you might come to the conclusion that the timeshare owner takes on more risk with respect to dues inflation than the cash rate ressie. I disagree entirely with the comment that maintenance issue differ. Its not the nature of the cost that differs (wages, insurance, etc...) but rather Disney's willingness to absorb some of the costs on the cash side to fill rooms.

 

[dianeschlicht]

I guess I don't understand why that is any different than any other timeshare. The big difference with Disney is that they have many cash resorts on site and several timeshares. The WDW attraction is obviously the major draw here, but our timeshare would go on even if WDW folded.

 

[Caskbill]

I really don't follow your point. What I am have said is that if your are evaluating DVC for your risk tolerance you might come to the conclusion that the timeshare owner takes on more risk with respect to dues inflation than the cash rate ressie. I disagree entirely with the comment that maintenance issue differ. Its not the nature of the cost that differs (wages, insurance, etc...) but rather Disney's willingness to absorb some of the costs on the cash side to fill rooms.

Yes, but keep in mind that for cash rooms, there is a buffer $$ related directly with occupancy rates.

If cash rooms decrease considerably, Disney doesn't just lower rates and absorb costs, they also lower costs: Reducing staff for example because you don't need as many people in mousekeeping or maintenance if a resort drops it's occupancy rate considerably. Or even closing a whole resort as they have done in the past, thus helping keep the occupancy rate at the other resorts higher, which in turn maintains demands, and maintains prices.

During Adventure season I can get a Studio at OKW for 8 points/night weekdays. Just considering dues, that's less than $31/night. For a cash resort, Disney would have to charge less than $28/night to match that. ($28 + tax = $31).

Somehow I can't imagine Disney ever reducing the rate for a room at AKL, or the Poly, to $28/night. To be fair in all comparisons, you should only compare DVC Studios as equivalent to hotel rooms, and DVC resorts to Moderates or higher. I'm sure we can all agree that there is no comparison between a room at All Stars, and a Studio at BCV, or VWL.

Yes, the formula changes as you get into weekends and higher seasons. A Studio preferred view at BWV, weekend, Premier season, runs 43 points, or about $175/night (dues only). A CRO cash rate (before taxes) would have to be $157/night. So even today, sometimes you can get a cash rate that may beat the DVC points.

I've deliberately left out the original cost of ownership. We purchased in 1993 and have already recovered all those costs if compared to staying the same number of nights over the years in Disney hotels. (Plus in our case, we got free tickets for almost 7 years)

Historically I think you'll find the overall risk to be much lower with DVC than the risk of continuing to pay rising hotel rates. All IMHO.

 

[Alexander]

What risks am I getting myself into by buying into DVC? ...snipQUOTE]

I terrible disease called "addonitis".

 

[Tigger031266]

One risk is some sort of terrorist attack. Disney seems somewhat vonerable and obviously is concerned about such an attack. It is very unlikely but it would devistate the parks. People would have a hard time taking kids to a place that has any risk at all. I pray that nothing would ever happen and I know the risk is low but it is still something to consider when buying in for 50 years.

 

[bcvillastwo]

What about the risk that you find you don't like WDW as much as you thought and want to sell after a few years? My point is that there are lots of risks some are financial and some non financial. One question you might ask yourselves is why you want to consider buying into DVC. I mean really think about it and think of all of the risks you can come up with both financial and non financial then consider the pro's and con's and make your decision.

You know, sometimes there's a risk of other familiy members being jealous of your good fortunue and the old green monster could rear it's ugly head and cause family problems. There are no end to the potential risks. The issue is can you identify the risks, can you accept the risks, and/or find ways to mitigate the risks.

Every buyer has to deal with these issues in some form or fashion.

Good luck with your decision.