Worst case scenario analysis-please help

[jnsolomon]

I have been lurking for quite a while and am trying to analzye the costs from a somewhat different angle. I view the "worst-case" as you buy from Disney and for whatever reason want to sell after just one year, or two or three,or whatever. Please critique my analysis and tell me where I went wrong. I would go to Disney once per year.

For my analysis, I used a 1br BLT MK view in October. I compared this to paying cash for the room through Disney with free dining for 4 adults and 1 child ($170 value per night). I used 4% inflation for both cash reservation and maintenance fees. The cost of the points is $99/pt and assumed the contract could be sold in any of the first 5 years at $80 per point ($72 when subtract 10% commission). I would not be financing the purchase.

Initial cost contract for 287 points = $28413
Sell contract for $80/pt minus commission =$20600
Loss on contract =$7813
Cash reservation first year =$3300
Maintenance fees first year =$1053

CASH RESERVATION

year 1 $3300
year 2 $3471, cumulative cost $6771
year 3 $3609, cumulative cost $10380
year 4 $3755, cumulative cost $14135
year 5 $3905, cumulative cost $18040


DVC OWNERSHIP starting with $7813 loss on contract and adding in maintenance fees

year 1 $1050 plus $7813 = $8863
year 2 $1092, cumulative cost $9955
year 3 $1135, cumulative cost $11090
year 4 $1181, cumulative cost $12271
year 5 $1228, cumulative cost $13499

In summary, if I only took on vacation and then sold my contract, I would have paid an extra $5563 ($8863 minus $3300) for that vacation. If I took at least 4 vacations and then sold, I would have saved $1864 over four years. Therefore I believe the break even point is between 3 and 4 years. Even if you assume the points can only be resold for $70 per point, the break even point is between 4 and 5 years. Let me know what you think.

 

[bookwormde]

Looks good for the most part but of course the sale price is an assumed variable. The only thing else you might add it the income you would have made of your money at a safe treasury or tip rate as a DVC side cost.

bookwormde

 

[J2MB]

As bookwormde mentions, if you went the Cash Reservation route you wouldn't be paying the $28K for a DVC membership. So you either need to include the interest on the $28K as a savings on the Cash side, or list it as an additional cost on the DVC side.

Also, your cash reservations considers free dining. Assuming it will always be available, you'll need to include the cost of the dining plan on the DVC side. You said the dining was $170 per night, so the first year would cost $1190 for the week.

Your analysis has about a $2200 per year savings for DVC over CASH. Which covers your $7800 "loss" in about 4 years. If you factor in the interst and dining plan costs, you'll save closer to $500 per year with DVC over CASH. Which would put you closer to about 15 year break-even.

Finally, if the October week would be your actual vacation plans, you'll need 288 points starting next year.

Good Luck.

 

[jnsolomon]

Thanks for the input. Just to clarify, I did not add dining plan cost to the DVC side because I subtracted the $170 per night dining plan cost from the cash reservation figures. In other words I treated free dining as if it were a $170 per night room discount on the cash reservation.
Thanks again

 

[CarolA]

Have you looked at resales lately?

SSR is reselling in the $70 range, not $80.

I think your "worst case" assumes too much "recovery"

 

[wdrl]

Another expense that should be considered is the closing costs on both buying and selling a DVC contract. I know that the buyer usually pays the closing costs, but you may need to assume some responsibility for these costs if you need to sell your contract quickly.

Another strategy to consider is to purchase your points in small contracts rather than one large contract. As others have discussed, four 70-point contracts are a lot easier to sell than one 280-point contract. I know that Disney requires that first time buyers have a 160-point master contract. But some posters have indicated that you can negotiate with Disney for smaller contracts if the total number of points you are buying is over the 160 point threshold.

 

[jlewisinsyr]

Just a note/question, $3,300 in October for a 1 Bedroom MK seems really low...a One Bedroom at SSR for a Week in October (choose first week) is $3,504 ($445/night), while a one bedroom Bay Lake (not even MK view) at BLT is $4,174 ($530/night).

I know you also took out the dining plan in terms of what it would cost, but I don't think you can get free dining in a 1 bedroom villa, even on cash reservation (could be wrong, but I think it's considered a suite for all intensive purposes).

Additionally you need to factor in the possibility of being able to get a reservation for a MK view 1 bedroom, these are going to be hard to come by, and my bet is many will be booked by members at 7 - 11 month mark, and cash reservations are usually not set aside that far out, at least not premium rooms that will maintain larger demand (keep in mind MK rooms only represent 20% of the total building).

 

[jnsolomon]

Have you looked at resales lately?

SSR is reselling in the $70 range, not $80.

I think your "worst case" assumes too much "recovery"

I am definitely very new to this, but I was assuming BLT will retain its value better than SSR. Maybe not a safe assumption?

 

[ohtarabell]

It seems everyone always forgets taxes on a cash ressie. You don't pay taxes (sales) on DVC bookings. This is significant in Orlando. I think it is about 12%. This would add $350 -400 annually to the cash reservation. This cost covers 1/3 of your annual MFs.

 

[TisBit]

I don't think free dining is even typically available in October, this year is a little different because of the economy and all. Also, I think you have to reconsider taking that money off of the room reservation, free dining can be taken away/modified etc at will of WDW. It is like using perks to calculate cost savings of DVC, yes we get discounts, etc but they will never be guaranteed.

DVC is like buying a car, if you compare the cost of buying a car for one month and selling it, compared to renting a car for one month, you will always lose. If you think you might have to sell in the first couple of year, DVC is not a good idea.

 

[tinapops]

The other thing you can consider is breaking your initial contract into a mina contract of 160 points and either another for 127 or one for 63 and one for 64 points. This way if you find you need to sell but can afford to keep part of the contract then you sell one of the smaller contracts off. Small contracts such for more money per point and more quickly since most people aren't looking to add on 200 points at a time, but prefer to add on smaller contracts. This way you can hedge yourself against the depreciation of the contracts. It may mean you now go twice every three years, but the savings will still apply and you can remove some of the worry of needing to sell before the break even point.

 

[Jason@dvcstore]

I am definitely very new to this, but I was assuming BLT will retain its value better than SSR. Maybe not a safe assumption?

I think BLT will sell higher than SSR as well. There are more owners at SSR which leads to more sellers which help lead to lower prices. For example, the lowest I think we have sold a BLT is $90 per point (sorry not in the office at the moment but think that is correct).

Jason

Please keep in mind however, if bought SSR now via resale it would be much lower than purchasing BLT via resale. SSR would sell for less but also did cost less.