Why do people regularly use rack rate for break even?

[Sandisw]

Then what do you use for a purchasing decision? The whole point is there are a lot of comps with known cost. Renting points, Swolphin, Wyndham. None of those require tying up five figures in a timeshare.

I think most do some level of comparing. But IMO it should never be something’s do detials that you have to get get x y or x to make it make perfect sense.

Why we went with CR tower room with 35% discount which was about what we had been paying when we bought.

We figured out room cost from there and used that yearly figure. Then started with a 50% value for sale and when we might “break even”

After year one, we lose, after year 5, we’d be even, and at 10 years we could give it away and still have spent no more for DVC, with dues than cash stays. It was simple and enough to pull the trigger.

If we had to sell BLT..our original resort for less than 50% of what we paid, it’d change. We were comfortable with that.

Basically, we knew that at 10 years in any recoup in purchase price was a bonus. We had no intention of stopping our visits sooner than that.

If we did, and sold, and ended up spending more via DVC than cash, that was okay because selling prior to 10 years would mean something more important was going on and any loss would be the least of our worries.

 

[Wiltony]

my assumption is it helps people mentally justify their purchase by “breaking even” quicker.

Bingo.

I did a lot of math when I started buying in but have since realized that the emotional side of owning DVC was making it worth it for me, as long as I wasn't getting fleeced.

 

[Brian Noble]

Then what do you use for a purchasing decision?

"That's a nice toy. I would like one and can afford it."

vs.

"That's a nice toy, but I don't think I (can)/(should)/(want to) spend that much on it."

vs.

"Huh. Why would anyone want that?"

 

[BeachClub2014]

"That's a nice toy. I would like one and can afford it."

vs.

"That's a nice toy, but I don't think I (can)/(should)/(want to) spend that much on it."

vs.

"Huh. Why would anyone want that?"

I bought DVC to argue about the mythical break-even point and whether or not to use the time value of money in the calculation. Staying at awesome resorts with my delightful family is just a bonus.

 

[Brian Noble]

"Should you consider the time-value of money in your financial analysis, and why is the answer yes?"

 

[Wiltony]

"Should you consider the time-value of money in your financial analysis, and why is the answer yes?"

Okay, so I see you want to start a fight about discount rates, eh?

 

[BeachClub2014]

"Should you consider the time-value of money in your financial analysis, and why is the answer yes?"

We used the time value of our kids loving Disney. I'll be doggoned if they grew up and STILL love Disney now that they are in their 30s. Who knew!?! Threw the whole calculation off. Now I have to keep the points for the grandkids.

 

[Brian Noble]

We used the time value of our kids loving Disney.

Perhaps surprisingly, this is why we did not buy. That bet paid off, but in ways I did not expect. The school district messed up our calendar long before our son timed out, but he timed out a few years before graduating high school.

DD and I still love it, and DW is game, but it hasn't been an all-four-of-us destination for quite some time now. He'll go if pressed, but it's not in his Top-Whatever list.

Our last all-four-of-us trip was Hawaii. The next two are New Orleans, and later a Park City/Lake Tahoe doubleheader.

 

[crisi]

Then what do you use for a purchasing decision? The whole point is there are a lot of comps with known cost. Renting points, Swolphin, Wyndham. None of those require tying up five figures in a timeshare.

Again, because the program works for you and you get value out of it. Pre-paid vacations, kids in another room for the night, easy access to a washer/dryer, the emotional benefit of "owning the magic" - whatever that value is. Which may be "saving money" but ROI calculations are inherently flawed for the reasons mentioned on the previous four pages and "saving money" requires discipline that is rare, if the threads on "addonitis" and treating friends and family and "we stayed in a one bedroom and can never go back to studios" are any indication. I'm not saying its a bad deal - I'm just saying don't buy thinking that at the end of the day you'll spend less for sure. If the numbers need to work to buy, then its a bad deal.

 

[DonMacGregor]

Then what do you use for a purchasing decision? The whole point is there are a lot of comps with known cost. Renting points, Swolphin, Wyndham. None of those require tying up five figures in a timeshare.

Because some of us don’t have five figures “tied up”. It’s discretionary cash and a sunk cost. The money was there to be spent, and now it’s gone. I don’t need to get it back. Like nice cars, a swimming pool, an outdoor kitchen, or plenty of hobbies, some of us spend the money because the purchase and any activity associated with it is fun or pleasurable, or improves our mental state or our perceived quality of life. If you’re having to make 5 different spreadsheets and calculations ad nauseam to determine if you “can” spend the money versus whether you “want‘ to, then it’s probably money you shouldn’t be spending regardless. Like any other timeshare.

 

[crisi]

Perhaps surprisingly, this is why we did not buy. That bet paid off, but in ways I did not expect. The school district messed up our calendar long before our son timed out, but he timed out a few years before graduating high school.

DD and I still love it, and DW is game, but it hasn't been an all-four-of-us destination for quite some time now. He'll go if pressed, but it's not in his Top-Whatever list.

Our last all-four-of-us trip was Hawaii. The next two are New Orleans, and later a Park City/Lake Tahoe doubleheader.

My son hasn't gone in a decade - he's a young adult now. Maybe soon, he's interested in an adult "let's revisit my childhood with alcohol" trip. But he'd rather be on a beach. And my youngest would rather be in a museum in Europe.

 

[BeachClub2014]

Perhaps surprisingly, this is why we did not buy. That bet paid off, but in ways I did not expect. The school district messed up our calendar long before our son timed out, but he timed out a few years before graduating high school.

DD and I still love it, and DW is game, but it hasn't been an all-four-of-us destination for quite some time now. He'll go if pressed, but it's not in his Top-Whatever list.

Our last all-four-of-us trip was Hawaii. The next two are New Orleans, and later a Park City/Lake Tahoe doubleheader.

It gets harder and harder each year to get the whole crew together. Any time you can spend vacationing with the fam is well spent. Hawaii and New Orleans are both awesome places to visit!

 

[crisi]

Because some of us don’t have five figures “tied up”. It’s discretionary cash and a sunk cost. Like nice cars, a swimming pool, an outdoor kitchen, or plenty of hobbies, some of us spend the money because the purchase and any activity associated with it is fun or pleasurable, or improves our mental state or our perceived quality of life. If you’re having to make 5 different spreadsheets and calculations ad nauseam to determine if you “can” spend the money versus whether you “want‘ to, then it’s probably money you shouldn’t be spending regardless. Like any other timeshare.

My husband drives a Mercedes E class. There is no cost benefit analysis where that car is worth what he paid for it financially over buying a cheaper car. But he LOVES that car and gets a lot of enjoyment from it. On Brian's scale, its "that's a nice toy and I can afford it."

I drive a ten year old used Prius, because it takes me from point A to point B with a low carbon footprint. On Brian's scale, expensive cars are "hey, why would anyone want that."

 

[DonMacGregor]

My husband drives a Mercedes E class. There is no cost benefit analysis where that car is worth what he paid for it financially over buying a cheaper car. But he LOVES that car and gets a lot of enjoyment from it. On Brian's scale, its "that's a nice toy and I can afford it."

I drive a ten year old used Prius, because it takes me from point A to point B with a low carbon footprint. On Brian's scale, expensive cars are "hey, why would anyone want that."

“Like nice cars, a swimming pool, an outdoor kitchen, or plenty of hobbies...” may be my personal ”that’s a nice toy and I can afford it” list.

 

[MartyParty]

I’m tracking our trips since purchasing in May and am comparing our total out of pocket costs to pay cash vs. whatever the current discount for the same room and same dates would be.

I’m curious why most people always seem to say they compare rack rate…(including the numerous and unashamed DVC podcast that exist as nothing more than advertisements for resale)?

No one in their right mind pays rack rate so my assumption is it helps people mentally justify their purchase by “breaking even” quicker.
Even using a basic 20% discount vs rack rate seems more logical.

To each their own, but the podcasts and “trusted” agents seem to be completely misleading people into when you can break even. Granted buyer beware and do your research but I’m curious for thoughts from others.

Excellent question.

It’s the easiest comparison today but also with historical and projected Disney hotel prices. But no need to limit yourself. When making up a spread sheet I’ve often had multiple columns for comparison: Disney, Disney discounted, moderate, budget, offsite, if invested, etc.

For our math time is precious. We have and will paid for deluxe Disney resorts proximity. My wife also prefers kitchen and laundry in the room. With those requirements the DVC vs rack rate works out as a savings. Our last stay was a 3 bedroom at Bay Lake. Took three years of points. Cash rate would have been around $18k. Doesn’t take many stays like that till you break even. And without those points I can’t see me paying for an $18k hotel bill for a week. I know, buying the points isn’t cheap either but we reached break even in about 7 to 8 years time. Would have taken longer with studio stays.

But everyone is different.

 

[Brian Noble]

If you’re having to make 5 different spreadsheets and calculations ad nauseam to determine if you “can” spend the money versus whether you “want‘ to, then it’s probably money you shouldn’t be spending regardless.

I'm going to cut people a little slack here, because this depends on their relationship with money and leisure, not just the amount of money and time they happen to have.

For example, DW grew up in circumstances that embedded a bit of a scarcity mindset. I sometimes have to remind her that we can afford to spend $X on this fun thing, because we have many many multiples of $X available to spend.

I grew up in circumstances that embedded a bit of "I don't deserve fun." I'm good about having fun if I'm doing it with my family, but it turns out to be hard for me to do it "all by me onesies, savvy?"

Take a healthy mix of those two--particularly if you've not yet spent a good chunk of time doing some inner shadow work--and you might well need to have sixty seven spreadsheets to justify spending what amounts to spare change you found in your couch.

My husband drives a Mercedes E class. [...] I drive a ten year old used Prius,

Amusingly, DW used to drive a ten year old Prius, but replaced it with a BMW two-door coupe. It's her "hot girl summer" car--and so out of character. To paraphrase Rod Tidwell: "I dig that about her!" (NSFW if you play to the end.)

 

[DonMacGregor]

I'm going to cut people a little slack here, because this depends on their relationship with money and leisure, not just the amount of money and time they happen to have.

Of course it does, but it is a proportional relationship. 30 year old me didn’t have the money to buy any of the cars I have now (or the other things), so the discretionary spend was on racing bikes (I’m a life-long competitive cyclist). Still a luxury, but proportional to my income. Regardless of how much money you have, how much you earn, or how well you have saved and invested in order to insure your financial stability, luxury items are luxury items, and if you need to spend an extended amount of time justifying the purchase (be it $500 for one person, or $50,000 for another), then there is a very good chance you can’t or shouldn’t spend the money. Especially, on not only a timeshare contract, but one that is primarily used to take Disney vacations. No one EVER needs a luxury item.

Plus, both my parents were Scottish AND Catholic, so a scarcity mindset and a healthy dose of guilt are bred into me.

 

[Brian Noble]

if you need to spend an extended amount of time justifying the purchase [...] then there is a very good chance you can’t or shouldn’t spend the money.

This is the place you lose me. I can imagine some folks having emotional barriers to spending it even though there are no objective reasons why they shouldn't.

I admit, I'm being charitable here, but maybe it's the season of miracles.

 

[DonMacGregor]

This is the place you lose me. I can imagine some folks having emotional barriers to spending it even though there are no objective reasons why they shouldn't.

I admit, I'm being charitable here, but maybe it's the season of miracles.

I think if you need to work that hard to convince yourself that you’re making the right choice, that, in and of itself, is the wrong choice. Save that for the extra bedroom for when the twins get older, or the new roof. Not a swimming pool or a timeshare.

Like, everything in life, they are always exceptions and outliers, just look at all the people who pass away with small fortunes in the bank, but little to no life experiences in the memory bank. But, at that point, we’ve moved far afield from the original debate about multiple spreadsheets, time value of money, sunk costs, salvage, ROI etc.

 

[KAT4DISNEY]

Plus, both my parents were Scottish AND Catholic, so a scarcity mindset and a healthy dose of guilt are bred into me.

Apparently not like a stoic scandanavian heritage raised in the midwest by parents born before the depression, one raised on a farm with no electricity and the other in a house with no indoor toilet?

Do I have you beat on this one?

(Analysis of value on where your money doesn't have to mean you don't have it to spend. It's just different economic values.)