Why do people regularly use rack rate for break even?

[DonMacGregor]

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?

6 years of food rationing during WW2, air raids, blackouts, and my mom had 9 brothers and sisters and they lived in counsel housing (3 bedroom row house tenements).

mic drop

 

[Genie+]

DVC is saving me $5,020.50 every year! The room is $2000 less than cash, APs saved $1000 over tickets, 20% discount saved $500, Moonlight Magic and EEH saved $1500 over AH tickets, saved $20 on 2 party tickets and saved $.50 on Doritos in the Epcot member lounge. Our 200pts only cost $2500/yr so it’s like a free room and $2500+ in my pocket for the next 40 years.

 

[peabody58]

Ours was all part of our retirement plans. We knew we wanted to go to WDW often, and knew what it cost previously. We also knew we wanted Deluxe resorts. So we bought BLT in 2010 and broke even in less than 7 years using whatever comparable room cost there was. Sometimes discounted, other times only rack rate available. Add-on-its with BWV in 2021, which should break even before we're dead, but it's now our favorite resort and love knowing we can always get a room. Break-even or not, we are enjoying lower room costs for trips we would have taken regardless with our retirement party plan. WDW/DVC is also a lot cheaper than our non-timeshare trips like to London, Alaska, River Cruises, etc., etc.

 

[DonMacGregor]

(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.)

And I totally agree. I would never be critical of anyone who chooses not to purchase a luxury item based on their personal financial values.

The original comment was that if buying a timeshare can’t be proven to save you money mathematically, then there is no reason to buy (or it might even be a reckless or foolish decision). Just as you point out that there are plenty of people who can afford the aforementioned ”five-figure purchase” but who choose not to based on personal financial values, there are also plenty of people who have the money who do chose to purchase, based on their set of financial values. Neither group is “wrong”.

As to the spreadsheet question, going back to what I was saying to Brian, it’s not a matter of whether one person has one set of economic values, while someone else has another. It’s a question of whether, if you work hard enough to create enough spreadsheets and calculations, that rationalization really serves any objective function. If you don’t have the money, trying to convince yourself with a bunch of spreadsheets that buying is the right decision isn’t going to make it affordable. If it’s purely reluctance or hesitation based on a personal financial value perspective (regardless of how much money you have) then a bunch of spreadsheets just attempts to sidestep those values by saying “well, I don’t feel right about spending this money, but the numbers tell me it’s the right choice”.

At the end of the day, it’s still a luxury purchase. Either you are comfortable with it, or you’re not. Some people will never be comfortable buying a timeshare, regardless of how much money they have, and that is the right choice for them.

 

[MonaMN]

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.)

Are we related? Midwest Scandianivian farm kid here who sometimes is still skittish when spending money on anything that isn't necessary.

DVC made sense to us when I nearly fell off my chair looking at how much moderate resort prices had gone up. Add in the money saved by not going anywhere during the pandemic... and here we are. Fighting the add-on-itis hard for now...

 

[Brian Noble]

Only tangentially related, but this op-ed essay in today's NYT felt connected to this discussion for me. (Link not pay-walled.)

Our Economy Thrives on Bad Feelings​

It takes a little while to get going, but this is the money quote for me (no pun intended):

But existential insecurity is not my focus here. The ways we structure our societies could make us more secure; the way we structure it now makes us less so. I call this “manufactured insecurity.” Where existential insecurity is an inherent feature of our being — and something I believe we need to accept and learn from — manufactured insecurity facilitates exploitation and profit by waging a near constant assault on our self-esteem and well-being. In different ways, political philosophers, economists and advertising executives have pointed out how our economic system capitalizes on the insecurities it produces, which it then prods and perpetuates, making us all insecure by design. Only by reckoning with how deep manufactured insecurity runs will it become possible to envision something different.

 

[RoseGold]

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.

This is a five figure discussion, more for some of us. It's not like the choices are lock up five figures or never go to WDW.

Of course you should take your time and compare it to all the other options. Nobody "needs" any of these options. There are a lot of other options, and many are a lot cheaper, or flashier, or more flexible, or better service, or working website, or more luxurious, or nicer pools, or less kids, or more money in stocks, or whatever metric you may value.

Timeshares in general, and certainly DVC, aren't a good fit for most. I can afford DVC and I go to WDW all the time. It's still a purchase I considered a long time to make sure it was really a commitment I wanted. At current pricing, if you compare to $218 at the Dolphin (or renting points) and any kind of reasonable investment in the market assumptions, you may never break even. That's a fact that would have at least made me pause, and I would argue wasn't true when I bought.

 

[zavandor]

DVC is not the cheapest way to vacation to WDW, value or offsite is.
DVC is not the more luxurious way to vacation at WDW, a suite or hotels like the Four seasons are.
DVC doesn't offer the most space, a villa with private pool on Airbnb does.
DVC is not the most flexible accommodation, paying cash with generous cancellation policy is.
DVC is not the most convenient way, just the UY explanation is 3 pages long.

The only reason to buy DVC is if it saves money over comparable accommodations. Anything else is moot. I don't buy into other factors like "owning the magic" or "be part of the club".
DVC must either save you enough compared to accommodations you'd book. Or allows you to book better accommodations for a price tag you're happy with.
I've bought because of the latter. I have divided the buy in cost by 10 years (an horizon I was comfortable with), added MF and found out I could stay at deluxe resorts for just a bit more than I would have paid otherwise in a value or offsite.
I could afford to pay cash with savings I didn't need for anything else. I could afford the MF. 11 years later and I'm still very happy with my decision.
I haven't saved a penny, actually I've given to Disney and British Airways an always increasing amount of money, year after year. But I've stayed onsite in wonderfully themed resorts that I would never book had I to pay cash.

So, yes, it's a toy and I can afford it, but it's also convenient according to my calculations.

 

[RoseGold]

The only reason to buy DVC is if it saves money over comparable accommodations. Anything else is moot. I don't buy into other factors like "owning the magic" or "be part of the club".

And even that is questionable against renting points for the identical product, which also has downside but can be cheaper.

 

[Brian Noble]

The only reason to buy DVC is if it saves money over comparable accommodations. Anything else is moot. I don't buy into other factors like "owning the magic" or "be part of the club".

There is a another reason, the "gym membership" effect: Buying a timeshare is a way to trick yourself into taking more vacations. Even if you think you'll take that many anyway, this is a way to commit to that in the moment rather than wait for future-you to decide to do it.

Or allows you to book better accommodations for a price tag you're happy with.

...and this version doesn't require exhaustive financial analysis, but instead:

1. Where would I normally stay?
2. Is DVC more attractive than that?
3. Am I willing to spend that much?

In particular it is perfectly fine if the DVC alternative costs more, because it is more attractive to you.

 

[crisi]

The only reason to buy DVC is if it saves money over comparable accommodations. Anything else is moot. I don't buy into other factors like "owning the magic" or "be part of the club".

I'm more analytical myself, but people do buy for emotional reasons - and if that is where they get their value over all the other ways to go to Disney, that's fine. It isn't like I've never in my life made a purely emotional purchase that hasn't provided the value past the act of purchase itself (though never one DVC expensive - I'm another victim of Midwest frugality).

Its a big part of what DVC sales tactics dig into - that and "saving money." The idea of "value" is a harder sell. "Membership," "Owning the Magic" and "look at what you'll save over rack rate" is easier.

 

[Genie+]

The only reason to buy DVC is if it saves money over comparable accommodations. Anything else is moot. I don't buy into other factors like "owning the magic" or "be part of the club".

I see DVC as getting more for the money I would’ve naturally spent. It’s a tradeoff. I’m committing, accepting stricter parameters and making a few compromises. In return we can elevate our experience.

If we were still cash booking guests something like Caribbean Beach for ~$300/nt would’ve been picked as a great fit. Not too expensive for a fun resort. Worth the price to us all things considered. Even if I pad our DVC outlay with TVM we’re still coming in around that budget and we’re staying in BW, Poly and VGF instead. Even more fun!

 

[kilik64]

Came for the assumed discussion of using rack rate to calculate break even is dumb...

And stayed for the microeconomic psychology deep dive of why individuals make buying choices.

Well played everyone.

 

[DonMacGregor]

Came for the assumed discussion of using rack rate to calculate break even is dumb...

And stayed for the microeconomic psychology deep dive of why individuals make buying choices.

Well played everyone.

Whatever you do, just don't say "I had the money, and I wanted it.". Heads will explode.

 

[zavandor]

There is a another reason, the "gym membership" effect: Buying a timeshare is a way to trick yourself into taking more vacations. Even if you think you'll take that many anyway, this is a way to commit to that in the moment rather than wait for future-you to decide to do it.

This is not a factor for me at all. But I am a lazy European with 27 days off a year (plus bank holidays). Never left a day go wasted in my life

And even that is questionable against renting points for the identical product, which also has downside but can be cheaper.

Not an option for me, I would not be comfortable renting and not having control of my reservation.

 

[sethschroeder]

With that logic,
I will gladly rent you 10 years worth of DVC points,
You will pay for the contract for me, and I'll spend 40 years just paying dues......

Except......

I save money buying DVC.

So ya.....

Otherwise sure I would rent from you if it were the cheaper option long term.

 

[sethschroeder]

The cost "savings" only work if you are disciplined about 1) only staying in studios AND 2) you were planning on taking every single vacation you end up taking with DVC at WDW in Deluxe and Moderate hotel rooms.

I would be going in a 1br or 2br to WDW regardless.

So what is less over 30-50 years?

• Buy DVC
• Rent DVC
• Book Cash

Buying DVC is less expensive for me for what I am trying to accomplish. I could possibly stay at POP for slightly less money but it doesn't have the kitchen or laundry access so that goes out the window when staying for 10 days or more like we do.

For starters, it might be a better deal to rent than to buy in some cases. MouseSavers has a nice analysis of this, and they currently estimate that buying doesn't out-perform renting for a couple of decades assuming you hold until expiration. Salvage changes the equation, but not that much.

The math from them is flawed on two parts:
1) You can buy-in for under $185 (heck I bought direct in 2020 for $155/point at RIV for our add-on)
2) You will not be renting from a DVC owner at $19/point in a couple years (its went up from like $13 to $18 or 19 already in the last 10 years)

 

[Brian Noble]

2) You will not be renting from a DVC owner at $19/point in a couple years (its went up from like $13 to $18 or 19 already in the last 10 years)

They assumed this would grow at 4% (which is a higher rate than I calculated when I looked at David's---from 2006 to now is about 3.2% per year.)

 

[sethschroeder]

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.

Thats fine but I still need to decide do I drop $50k on upfront DVC costs or do I rent out a yacht in the caribbean.

Everything is finite and there was some decision being made that its better to use the money here than there.

 

[DonMacGregor]

Thats fine but I still need to decide do I drop $50k on upfront DVC costs or do I rent out a yacht in the caribbean.

Everything is finite and there was some decision being made that its better to use the money here than there.

If you choose not to decide, you still have made a choice...

Neil Peart