DVC - Running Rough #'s

[BigRedDad]

I am not even on the cusp of thinking about DVC. However, I run numbers at work all the time for finance, investments, and budgets. So, I figured I would run a few quick numbers that I could find online. The example I used was a Beach Club resale with 200 points.

Resale: $18,000
Maintenance (200): ~$1000
Vacation: Roughly 2 weeks during the value season
Add'l to cover 2 full weeks (estimate): $500

Looking at this data, and that is all it really is, you can compare the cost of vacations. 2 weeks a BC is ~$5000 per year on a value season. This is just one example, but the break even point for DVC is year 5. After that, the difference becomes exponential.

This example does not take into account drastic Maintenance fee increases and selling of points. I figured over time, those will wind up balancing.

Therefore, if I was looking at this as an investment/worth joining, I would be looking at having it at least 5 years. The deciding factor at that point will be the initial payment of $18k.

Does anyone see a flaw to the calculation? I am basing this off of the information I could find online.

[Ian]

The only flaw I see is that you assume zero inflation on the cost of a week at the Beach Club.

Disney raises resort rates to one degree or another every few years, so somewhere you'd have to factor that into the payback period, as well.

That was actually the biggest tipping point for me was the ability to hedge against inflation costs for vacations.

10 years from now what will most people be paying for a week at the Beach Club? I know what I'll be paying ...

[BigRedDad]

WDWacky,
I don't think that was a "flaw" in the calculation. I think that only solidifies the reasoning behind the calculation. There are 100 if's, and's, or but's in this data. Looking at raw numbers gives you an idea of the advantage.

[Fortgoofy97]

I to run numbers at work, but never looked at purchasing DVC with a break even. First you are assuming you will take two weeks, with DVC there are always the intangibles that can never be calculated. The convenience, the ease and enjoyment of knowing," Hey we have the points why don't we go in May or any other time when you just feel like getting away!" You can run numbers 20 different ways,, look at pros and cons but it all comes down to an emotional decision, "Whats it worth to know we have the capability to go away at anytime, as long as we have enough poins?!!"

[Ian]

WDWacky,
I don't think that was a "flaw" in the calculation. I think that only solidifies the reasoning behind the calculation. There are 100 if's, and's, or but's in this data. Looking at raw numbers gives you an idea of the advantage.

I agree ... I was just pointing out that hedging against inflation is only one more item on the plus side of the equation and one that, IMO, is the biggest.

[dlpmikki]

If you look in the why not to buy topic you will find people with some fairly extreme ways of doing the numbers. All I know is that I have some wonderful holidays over the last 15 years at DVC properties and could still actually sell my points for more than I paid for them. I'm not going to because DVC is an investment in yourself and your family - it isn't a money thing at all.

[MarkC]

I am also a "numbers" guy and did the math. You have to look at what interest you could have received had you invested the money as well, but you also have to figure inflation. My guess based on 4% inflation is that by the end of the timeshare (2042), the cost of one night at the Beach Club will be around $1,000. We just purchased a BCV resale (100 points) knowing that our kids and grandkids will be enjoying it as well, which is something money can't buy or figure into. Another thing to consider--we will use the Disney Visa to pay our maintenance fees. So for us, we will be staying 6-7 nights per year at the Beach Club for the next 35 years without paying another penny for a motel. We decided we're going to go to Disney anyway, so we just as well make it worth our while. I wish we would have done this 10 years ago but I didn't have the money then, nor did I think I'd be going every year.

[Ian]

Mark, that's my biggest regret as well. We came very close to buying about 4 years ago, but we backed out because we weren't sure we could afford it, didn't know if it was worth it, etc.

If we had bought then we would have saved a ton over what we eventually paid.

Oh well ... hindsight is 20/20. There will be people four years from now saying the same thing.

[tinkerbell04]

I think a lot members feel like they just wished they bought sooner, I know we do!

[pogo]

We are doing the same thing right now.

I can justify buying into DVC in many ways but I can also prove to myself that it a waste of money.

It is an emotional decision for sure...... not a financial decision.

[Ian]

It is an emotional decision for sure...... not a financial decision.

I used to think that, too, but when I really sat down and did a financial analysis, I'm hard pressed to find a way in which it isn't a good financial decision.

Think of it this way ... assuming you always plan to take vacations (and if you don't even that doesn't matter since you can always re-sell your points, often for more than you paid) then you're just pre-paying at today's prices for tomorrow's vacations.

If you could do the same thing with gas or food or clothing, wouldn't you? Of course. It's a financial no-brainer because of inflation.

In another thread I was reading, someone gave an estimate that in 40 or 50 years, given reasonable rates of inflation, a night at the Beach Club will cost $1,000. It won't cost me that ... it'll cost me about $71 a night and that's assuming that my annual dues have risen to $1,000 a year at that point.

[MarkC]

The $1,000 estimate in 35 years was my rough projection-- and that's at a budget price. I took a discounted price of $250 per night and figured 4% inflation. If you figure the peak season rate of $400 per night @ 4%, the cost is almost $1,600 per night. In 20 years you can probably sell your share for easily more than you paid for it because the new points will be several hundred $/point. I hope and pray I'm still healthy and can afford to re-up at the end of the contract so my kids, grandkids and great-grandkids can continue to enjoy it. If you're going to go to Disney anyway, this makes both financial and emotional sense. If you're not, it's not for you. It clearly is for me.

[Fortgoofy97]

Originally posted by dlpmikki: I'm not going to because DVC is an investment in yourself and your family - it isn't a money thing at all.

Running numbers to see if it is a good financial decision is wasting time. Once the numbers are done you still have to make a decision, which is emotional. You really have to ask yourselves- Do we want to go away every year? Does DVC offer other choices that we would like to do other than WDW? Can we afford(this is where the numbers fall in) to pay for it in full or make monthly payments? Can we afford(numbers again) the yearly maintenance? The last big question, is this something we want to do? Again all emotional! Its is an INVESTMENT, in your family!

[DizneeRX]

I used to think that, too, but when I really sat down and did a financial analysis, I'm hard pressed to find a way in which it isn't a good financial decision.

Think of it this way ... assuming you always plan to take vacations (and if you don't even that doesn't matter since you can always re-sell your points, often for more than you paid) then you're just pre-paying at today's prices for tomorrow's vacations.

If you could do the same thing with gas or food or clothing, wouldn't you? Of course. It's a financial no-brainer because of inflation.

In another thread I was reading, someone gave an estimate that in 40 or 50 years, given reasonable rates of inflation, a night at the Beach Club will cost $1,000. It won't cost me that ... it'll cost me about $71 a night and that's assuming that my annual dues have risen to $1,000 a year at that point.

On the surface, this seems to make good financial sense. However, if you look just a little bit deeper, it is not so clear cut. Of course everyone would want pay $71 a night rather than $1000 night. But that's not a fair comparison - you really have to take into consideration the time value of the money you are spending. Rather than paying $71 today, you could invest the money ($71@ a relatively conservative 7% rate of return over 40 years would be worth approximately $1160.00) and use the proceeds to pay for your room. Of course you would have to factor in taxes, and, I'm not sure if you’re financing your DVC purchase, but you would also need to factor the interest you're paying into the equation.

And also, let's not forget, in 40 years, yes, the room will cost considerably more than it does today, but your salary will (or should) increase so that it will at least keep up with inflation. So since we're assuming that your salary is at least keeping up with inflation and the room rate is rising with the rate of inflation, you will be using the same percentage of your income on the room in 2047 as you would today.

One more point to ponder - the annual dues. I'm not sure if increases in your annual dues are specified in your contract, but if they're not - using the same inflation rate of 4%, and assuming your annual dues are $500, you're looking at annual dues of over $2400 in 40 years.

When you’re looking at a situation like this, you should always remember these 2 important concepts - Opportunity Cost and the Time Value of Money - you're spending your $ on a time share today, but you lose the opportunity to use that $ in other ways, such as investing. And if you invest wisely, that money will be worth more tomorrow than it is today.

And to your other point - If I could prepay for tomorrow's food and gas at today's prices, would I do it? Unless something in our economy drastically changes, I'd have to say… no, I would not. Food and gas prices are just too volatile, especially gas. Take a look at the price of gas over the last 18 months - in my area, it's been up AND down (and back up again) at least $1.00 / gallon. Should I buy it now and hope that it doesn't drop $1.00 / gallon over the summer. And produce this year is going to be pretty expensive because of the horrible weather - droughts, flooding etc. But next year, who knows....

[Ian]

Your points are all valid ones for the most part, although I do plan on retiring some day so the idea that my salary will be high enough to compensate for inflation is probably inaccurate. Also it's well-known that inflation has outpaced salary increases over the last twenty years, but again ... you do make some good points.

Yeah, I could invest the money now and have it later. That's true. But saved money has a funny way of being used for other things. Who knows where that money would be in 30 years? The market might crash and steal half my investment. Who knows?

Vacations are very important to my family and this way I've basically set it up to guarantee myself money for vacations every year.

I do not, however, agree with you that pre-paying for gas and food wouldn't be a great idea. You can look historically at food prices and see steady increases over the years. Yes, there is some short term volatility in both markets, but the long steady rise in prices has been both predictable and inevitable.

Although for gas you could argue that it may not be a good investment since, theoretically, at some point we'll be using alternative fuels and your gas would be obsolete.

[Carol]

Are you figuring the cost of a 2-Bedroom villa when crunching the numbers?

All I can say is; stay in a villa once with all the amenities and you'll be hard pressed to stay in a standard room again.

[CanadianWDWFan]

Good thread! We are on the fence in regards to making the money decision. for us the emotional one was a no brainer! You guys have brought up some good points that I never really thought about. Unfortunately I don't see us making the purchase until sometime next year.

This is where Ian's hind sight is 20/20 comes into play.

Oh and Carol, I hope you get your avatar back soon. I am surprised that my dog hasn't eaten mine. After all he has eaten everything else in the house!

[Ian]

Actually, I thought of something significant that didn't get factored into DizneeRX's numbers.

You said I could just save the money I spent on DVC and in 40 years (or whatever) I'd have enough to pay for my $1,000 a night room.

But what that doesn't take into account is the fact that my $15,000 investment now buys me 12 nights (estimated) of vacation every year between now and then. Even assuming a marginal $250 a night room rate at SSR that's $3,000 per year in vacations.

So in order for your investment idea to work, you'd have to take out that $3,000 per year each year to pay for the vacations that my $15,000 is buying us. By my calculations, factoring that in, you run out of cash after the 5th year.

My point is, it's not like I've invested $15,000 to get "free" vacations 40 years from now. My $15,000 buys us vacations for all 40+ years. The truth is, even if we just took those 12 nights of vacations at $250 a night for 5 years, we'd already have spent the $15,000.

I don't see any feasible way you could invest $15,000 now somehow make it last to get 40 years worth of vacations out of it.

[MarkC]

Anyone can run numbers and make them come out either favorable or unfavorable. One thing-- I am NOT planning on paying any maintenance fees. I will use the Disney Visa Rewards to pay for them. My initial outlay will be it. Even as the fees increase, so will everything else that I pay with my Visa. So for me, knowing we want to vacation at Disney yearly and stay at the Beach Club, it makes financial sense. Yes, we could stay home or stay someplace cheaper but that is the lifestyle/family issues coming into play. To each his own.

[DizneeRX]

Also it's well-known that inflation has outpaced salary increases over the last twenty years, but again ...

I do not, however, agree with you that pre-paying for gas and food wouldn't be a great idea. You can look historically at food prices and see steady increases over the years. Yes, there is some short term volatility in both markets, but the long steady rise in prices has been both predictable and inevitable.

With regard to inflation - Actually that's a common misconception. Except for the last 3 years (during the current economic expansion) for the most part, since WWII salaries have at least kept pace with inflation - this being measured by the part of the GDP made up by employee pay.

And about prepaying for food and gas - My point wasn't that food prices haven't risen - of course they have. My point was that prepaying for food would not be the better financial decision. This is off the top of my head, but if I'm not mistaken, the highest annual average inflation rate over the last 10 years has been about 3.4 - 3.5 %. (There have been months where higher #'s have been reported, but these #'s have been scaled down or offset by much lower #'s in following months.) Right now, I can get a 5 year cd with an apy of 5.33%. Would I rather pre-pay for something and save the inflation? or invest the money in a cd @ 5.3%? That's a pretty simple decision.