What so others think ...

[bakerworld]

of this statement scavenged from other forum:

Over the course of the contract, the initial price, when amortized, is almost irrelevant compared to the MFs. It's just a question of how much one wants to lay out now. The amortized cost, as you noted, is roughly the same in either case.

 

[CMOORE185]

I could be wrong, but here are some of my thoughts. I think that is true to some extent. If there is a 20 to 30 dollar per point difference in initial buy in, yes. But if someone paid $50 per point vs $150 per point, no. You also have to factor in the MF's for a particular resort. If you paid more per point for BLT vs VB there is such a large discrepancy in MF cost that BLT could be the better deal even though you paid a much higher buy in cost. It also depends on how many points you buy. Also whether you financed or not is a big difference. Bottom line is, it is not a definitive statement.

 

[disneynutz]

What I think is that the cost of ownership and vacationing at Disney for 30 to 50 years will cost the average family $300,000 plus.

Bill

 

[KAT4DISNEY]

Kind of like buying a horse. So may people get hung up on the purchase price but that's going to be nothing compared to the cost to feed and care for them over their lifetime. (Written as I look out at one of my 4 expensive little hobbies walking around after having eaten part of a bale of hay).

The dollar amounts are not trivial for a buy in but yes, compared to the MF's over the full life of a contract they could be considered to be.

 

[disneynutz]

Kind of like buying a horse. So may people get hung up on the purchase price but that's going to be nothing compared to the cost to feed and care for them over their lifetime. (Written as I look out at one of my 4 expensive little hobbies walking around after having eaten part of a bale of hay).

The dollar amounts are not trivial for a buy in but yes, compared to the MF's over the full life of a contract they could be considered to be.

It's not just the MF's, it's the cost of a luxury Disney vacation, food, admission, and travel, and those prices increase each year.

A bale of alfalfa used to cost $4.00.

Bill

 

[nabi]

^^^^Yep!!

 

[Msmithmd]

I'd disagree that purchase price doesn't matter based on amortization alone- because that ignores the time value of money.

Let's say I was going to buy 300 points, at either $70pp resale or $150pp direct. The net difference is $24,000, or $80pp.

For simplicity of math, let's assume both of these potential contract options have the same annual maintenance of $6pp, or $1800 in year one, and increased annual dues averaging 4% yearly.

If I were to buy the lower cost option, and invest the $24,000 saved in a stock index fund, all I would need is a 7.5% annual return to completely cover paying the cost of annual maintenance for the first year. With admittedly huge year to year variability, one could reasonably expect that the stock market will return more than that annually, over the long term (say a 30-50 year DVC contract term.).

If the annual maintenance fees do go up 4% a year, and the stock market over several decades succeeds in returning an average of 11.5%- then by buying in at lower initial cost and investing the difference, I have literally covered the cost of maintenance fees for the entire life of the contract.

Now, we can all agree that most people buying aren't going to actually follow my example above- most would use that cost difference on something else. I just post this as a theoretical example of why saying "initial buy-in cost doesn't matter" isn't truly accounting for the value of the money saved by a lower buy-in cost.

Buy where you want to stay. Buy only what you want to use. And yes, buy understanding that you will spend dramatically more on the trips than you do on the DVC product.

Just understand that spending more money today really does make a big difference, when considered ten (or fifty) years into the future.

 

[KAT4DISNEY]

It's not just the MF's, it's the cost of a luxury Disney vacation, food, admission, and travel, and those prices increase each year.

A bale of alfalfa used to cost $4.00.

Bill

Ah - those were the days!

 

[a742246]

Kind of like buying a horse. So may people get hung up on the purchase price but that's going to be nothing compared to the cost to feed and care for them over their lifetime. (Written as I look out at one of my 4 expensive little hobbies walking around after having eaten part of a bale of hay).

I have to laugh about this because my next door neighbor has 4 horses and he solved this problem by buying a $40,000 tractor, 12,000 baler, and a 3,000 rake. But he is saving on feed now.

 

[KAT4DISNEY]

I have to laugh about this because my next door neighbor has 4 horses and he solved this problem by buying a $40,000 tractor, 12,000 baler, and a 3,000 rake. But he is saving on feed now.

Lol - it must be part of our genes - the same crazy idea has crossed my mind!

 

[Dean]

of this statement scavenged from other forum:

IMO it's simply wrong. It sounds like they're taking the up front costs and simply dividing by the RTU remaining. That approach totally ignores the time value of money. For many resorts, the up front costs are actually as much or more than the fees's when you consider the TMV, for others it's smaller but not negligible. For a new purchase I generally take half at money market rates and half at long term investment rates and for many situations, subtract out the yearly vacation costs for a comparable component minus the yearly fees one would have paid first from the money market amount.

 

[bakerworld]

IMO it's simply wrong. It sounds like they're taking the up front costs and simply dividing by the RTU remaining. That approach totally ignores the time value of money. For many resorts, the up front costs are actually as much or more than the fees's when you consider the TMV, for others it's smaller but not negligible. For a new purchase I generally take half at money market rates and half at long term investment rates and for many situations, subtract out the yearly vacation costs for a comparable component minus the yearly fees one would have paid first from the money market amount.

Actually ... from different posters

There are savings to be had resale, but I don't think buying resale necessarily puts you 3 or 4 x's over a direct contract in all cases. It just feels good to spend $50pp now -- however, my investment still comes out to $2.00pp over the life of the remaining years on the property.

Over the life of the contract there's virtually no difference. It all comes down to, do ya want to spend an extra, say 5 or 10 grand up front. Even 5 years from now the difference is lost in the mists of time.

Now, they didn't say anything about taking the purchase difference and specifically investing

 

[Dean]

Actually ... from different posters





Now, they didn't say anything about taking the purchase difference and specifically investing

The only way to come to those conclusions is to ignore both the significance of the up front costs AND the time value of money. When comparing resale to retail, the entire difference is appropriate to count as a long term investment. When you do that you'll frequently see the costs around the same for the long term cumulative fees vs the up front invested. All you have to do is put a representative amount in an investment calculator and figure out the long term value to see the significance.

 

[cmrdgrs]

The only way to come to those conclusions is to ignore both the significance of the up front costs AND the time value of money. When comparing resale to retail, the entire difference is appropriate to count as a long term investment. When you do that you'll frequently see the costs around the same for the long term cumulative fees vs the up front invested. All you have to do is put a representative amount in an investment calculator and figure out the long term value to see the significance.

I would say that they aren't looking at the significance of the up front cost and/or the time value of money. The original poster probably is simply looking at DVC as what it is -- prepaying for vacations, using money that would have been spent anyway. Is it a gamble that you will use it for 50 years and get the full value out of that money spent up front? Heck yeah! But, it is also a gamble that a person would be able to make 11% on their money too if they invest it. They could invest it and end up with nothing and the investment could go bust. DVC could go bust for that matter.

DVC is a prepaid vacation plan. The OP of that statement is gambling that their prepayment is going to pay off and they will save money on what they would have spent anyway on vacations.

 

[bakerworld]

I'd disagree that purchase price doesn't matter based on amortization alone- because that ignores the time value of money.

Let's say I was going to buy 300 points, at either $70pp resale or $150pp direct. The net difference is $24,000, or $80pp.

For simplicity of math, let's assume both of these potential contract options have the same annual maintenance of $6pp, or $1800 in year one, and increased annual dues averaging 4% yearly.

If I were to buy the lower cost option, and invest the $24,000 saved in a stock index fund, all I would need is a 7.5% annual return to completely cover paying the cost of annual maintenance for the first year. With admittedly huge year to year variability, one could reasonably expect that the stock market will return more than that annually, over the long term (say a 30-50 year DVC contract term.).

If the annual maintenance fees do go up 4% a year, and the stock market over several decades succeeds in returning an average of 11.5%- then by buying in at lower initial cost and investing the difference, I have literally covered the cost of maintenance fees for the entire life of the contract.

Now, we can all agree that most people buying aren't going to actually follow my example above- most would use that cost difference on something else. I just post this as a theoretical example of why saying "initial buy-in cost doesn't matter" isn't truly accounting for the value of the money saved by a lower buy-in cost.

Buy where you want to stay. Buy only what you want to use. And yes, buy understanding that you will spend dramatically more on the trips than you do on the DVC product.

Just understand that spending more money today really does make a big difference, when considered ten (or fifty) years into the future.

The only way to come to those conclusions is to ignore both the significance of the up front costs AND the time value of money. When comparing resale to retail, the entire difference is appropriate to count as a long term investment. When you do that you'll frequently see the costs around the same for the long term cumulative fees vs the up front invested. All you have to do is put a representative amount in an investment calculator and figure out the long term value to see the significance.

Now you're right - not only wouldn't i do the math - I don't even think I am capable of doing that math and I am completely of investing. Me ... I'm just going on vacation and trying to stay where the only bus I'm boarding is the one getting me back and forth to the plane.

But I was curious how all the hard core 'merchants' would respond.

 

[Msmithmd]

Your point is well taken, bakerworld. I was simply trying to walk out line-by-line the math of why "purchase price doesn't matter" is failed logic, for any casual forum reader.

Would I spend more if the resort I wanted for home cost marginally more? Yes, certainly. That's why I chose not to own SSR (no offense to SSR fans, it just isn't my preference, although it IS the best financial decision to get into the system.)

Would I spend $80pp more? Nope...

 

[cmrdgrs]

Now you're right - not only wouldn't i do the math - I don't even think I am capable of doing that math and I am completely of investing. Me ... I'm just going on vacation and trying to stay where the only bus I'm boarding is the one getting me back and forth to the plane.

But I was curious how all the hard core 'merchants' would respond.

 

[supersnoop]

Since the initial quote states "over the course of the contract," I think it's an accurate statement, assuming the life of a contract begins at the inception of the property. The extra spent buying direct will buy you more years than buying a contract later in its life.

I think the quote is even more true when comparing the resale prices at the various resorts. You can assume that all contracts should be priced based on the number of remaining points through the contract's term and the ongoing maintenance expenses. The only difference between properties should be based on any additional desirability.

Based on my research, BLT, one of the more expensive resales, is second only to SSR when it comes to value (total cost per point over the term of the contract). Despite a $20-$30 initial per point premium, you'll get more value for your money than any other property, save SSR. In that case, the statement holds true.

 

[Dean]

I would say that they aren't looking at the significance of the up front cost and/or the time value of money. The original poster probably is simply looking at DVC as what it is -- prepaying for vacations, using money that would have been spent anyway. Is it a gamble that you will use it for 50 years and get the full value out of that money spent up front? Heck yeah! But, it is also a gamble that a person would be able to make 11% on their money too if they invest it. They could invest it and end up with nothing and the investment could go bust. DVC could go bust for that matter.

DVC is a prepaid vacation plan. The OP of that statement is gambling that their prepayment is going to pay off and they will save money on what they would have spent anyway on vacations.

Now you're right - not only wouldn't i do the math - I don't even think I am capable of doing that math and I am completely of investing. Me ... I'm just going on vacation and trying to stay where the only bus I'm boarding is the one getting me back and forth to the plane.

But I was curious how all the hard core 'merchants' would respond.

IMO it's a mistake to ignore the real value of the up front buy in but it's your right to do so just like people go into a dealership and pay full price for an automobile when they don't have to. The fact still remains they've literally thrown away thousands of dollars in this scenario and for the most part (pulling from other financial circles), those who do so are generally going to be the ones who are least likely to be able to do so. Plus, as a group, they are more likely to not pay attention to their costs in other areas as well.

 

[chalee94]

Since the initial quote states "over the course of the contract," I think it's an accurate statement, assuming the life of a contract begins at the inception of the property. The extra spent buying direct will buy you more years than buying a contract later in its life.

I think the quote is even more true when comparing the resale prices at the various resorts. You can assume that all contracts should be priced based on the number of remaining points through the contract's term and the ongoing maintenance expenses. The only difference between properties should be based on any additional desirability.

that assumes that a dollar right now is worth no more to you than a dollar in 2030. or that a point in 2030 is no more valuable to you than a point right now.

you might be paying $20 per pt in annual dues in 2040, but the thing you have to wrap your head around is that paying that much in 2040 is no more than paying $5 per pt in 2014. it looks like it if you put it in a spreadsheet (and implicitly assume you are dealing with constant dollars), but it's not the case.

i would like to borrow from people who don't understand the time value of money...you could loan me $10,000 right now and in 15 years, i will cheerfully return your $10,000 in full. $10,000 = $10,000 and we are all square. except that when i put it in those terms, you start thinking i would have to give you more money down the road to make it worthwhile for you to give up that money right now.

DVC is expensive upfront and down the road. but you should have a natural understanding that every dollar that it costs you upfront hurts worse than several dollars will in 20 years.