Originally Posted by
Ian
Okay ... I had to read this two or three times before I picked up on where your analysis misses the mark ... I knew something was off, but couldn't put my finger on it.
You only factored in the cost of his annual dues. You forget to factor in the upfront money he paid to buy his points, interest on the financing, lost opportunity cost, etc. amortized across the life of the contract.
His actual annual cost to own is probably at least two to three times the $1,400 he pays in dues. Even if he got a pretty good deal on his 300 points and only paid $80 a point, that means he spent $24,000 to buy his points. If he financed them at the standard Disney rate of 10.25% over 10 years and put down only the required 10% that means his actual cost to buy the points was around $31,000.
That means, assuming he has the full 50 years on his contract, you have to add an additional $620 per year in costs to the equation. And that doesn't count in lost opportunity cost in terms of what he could have earned on that money if he had just banked it.
If he invested the $24,000 over the 50 year period and only earned a modest 5% rate of return, compounded monthly, that would give him about $290,000 at the end of the term. Divide that by the 50 years (subtracting the original $24,000) and it comes to another $5,320 per year ($290,000 - $24,000 = $266,000 / 50 = $5,320) bring his total annual costs to approximately $7,340 per year ($1,400 a year in dues + $620 a year for points purchase and financing + $5,320 per year in lost opportunity cost).