DVC purchase calculator?

[Anne]

Is anyone aware of an existing calculator for DVC purchase that factors in the "time value of money"? For example, lets say I have $20,000 now that I can either invest in future vacations by purchasing DVC, or invest in the conventional sense by putting in an extra taxable investment account (above and beyond my normal 401 K contributions). I spend 1 week per year for the next 50 years at DVC (or whatever my $20,000 worth of points would get me). And I have either yearly expenses equal to yearly DVC dues (adjusted up each year at the rate of inflation, or at historical rates of increase if those are available). Or if I didn't purchase DVC and invested the initial capital; yearly expenses equal to rental of the exact same room/duration I would have gotten with $20,000 worth of points (adjusted up each year at the rate of inflation, or at historical rates of increase if available). At the end of 50 years in which scenario have I given Disney less money? This would assume I have the cash flow in the early years to not touch the original $20,000 and pay the higher yearly cost of out of pocket direct rental of the DVC room.

Am I correct that the graphs in Gregg's sticky don't factor in an alternate investment use for the DVC purchase money?

The beauty of a calculator would be the ability to plug in all the various permutations and compare them; direct from Disney, resale, rack rates, point rental etc. And if you
could play with your return on investment rate and inflation rates and duration (for DVC resale contracts which would be less than 50 years) that would be even better.

I'm considering doing a calculator like this but don't want to move forward if one already exists, obviously.

 

[bnoble]

MouseSavers has a spreadsheet, but it probably needs to be updated.

www.mousesavers.com/other-disney-vacations/disney-vacation-club

PS: good luck. I've tried to have this conversation often, and a surprising number if people don't 'believe' in opportunity cost---probably because it puts a lot of scenarios in the red that wouldn't be otherwise. Good news if you are selling timeshare, I guess.

 

[George]

Opportunity Cost is a special beast which doesn't take into account emotional needs. There's always a better place to put your money, but there comes a time where you need to determine what you really want from your money-earning efforts.

 

[bnoble]

True. But, I get pushback in the apples-to-apples case of rent from an owner vs. buy retail vs. buy resale. You take exactly the same number of vacations, in exactly the same lodging, the only question is what it costs. Even in this case, you'd be surprised at how many people will insist that $10,000 today is the same as $1,000 every year for ten years.

Ultimately, most people will do what they want to do, and the "analysis" they perform is crafted to help them justify the answer they want. That's not necessarily the worst thing in the world---money is for spending, after all.

 

[bnoble]

Semi-OT, but my brother and his wife---a dual-MBA couple---somehow got talked into going on a timeshare tour about a decade or so ago. The sales agent played exactly this game, completely ignoring the time value of money to justify an unreasonable payoff horizon vs. rentals. Even after being called on it, the agent insisted his analysis was correct. My brother: "Either you don't understand finance, or you think I don't. Either way, this meeting is over," and walked out.

 

[George]

Semi-OT, but my brother and his wife---a dual-MBA couple---somehow got talked into going on a timeshare tour about a decade or so ago. The sales agent played exactly this game, completely ignoring the time value of money to justify an unreasonable payoff horizon vs. rentals. Even after being called on it, the agent insisted his analysis was correct. My brother: "Either you don't understand finance, or you think I don't. Either way, this meeting is over," and walked out.

The Nobles are a tough bunch!

 

[bnoble]

He's got an even shorter fuse than I do, and that's saying something.

 

[Anne]

Opportunity Cost is a special beast which doesn't take into account emotional needs. There's always a better place to put your money, but there comes a time where you need to buy rmine what you really want from your money-earning efforts.

The question I'm trying to answer hopes to avoid the emotional aspect. The scenario above is the same product, 1 week at DVC per year for the next 50 years. I want to know what is the cheapest way to buy that product. It does assume a degree of cash flow that not everyone has. If I don't have the cash flow in the early years to set aside the initial investment cost plus pay out of pocket then the calculation becomes less meaningful.

 

[bnoble]

The scenario above is the same product, 1 week at DVC per year for the next 50 years. I want to know what is the cheapest way to buy that product.

The answer to this specific question is almost certainly: buy resale. Renting from an owner will be a close second. Buying retail is a distant third. Even if owning vs. renting turns out to be slightly in favor of renting, it might still be worth owning because you save significant time just booking yourself vs. finding an owner to negotiate with each year.

 

[bnoble]

Here's an example:

OKW is currently running about $65-$70 resale for an "even" (not loaded, not stripped) contract. Ownership horizon is 2042, so 27 years. Amortizing $70 over 27 years at 5% (probably too high, but...) is $4.68 per point per year. Current OKW dues are $5.84. Total cost per point for this year is $10.52. The rental market for OKW points (non-distressed) is right around $11-$12, so owning even under slightly pessimistic assumptions wins.

One of the interesting outcomes of this analysis is that the ROI on being a "DVC landlord" is pretty iffy. Suppose you are getting $12. After dues you net about $6.16, which is a pre-tax ROI of 8.8%. Okay, but not great given that renting timeshares turns out to be time-intensive. Lots of other timeshares provide a much better return---usually because their resale markets are significantly lower.

Edited to add: computing the ROI is another quick and dirty way to figure out if you want to rent or buy. If you think your long-term rate of return on investing the DVC purchase price is larger than the rental ROI, you should rent. If you think your long-term rate of return will be lower, you should buy.

 

[bnoble]

One more thought:

There are certain situations in which renting from Disney directly can work out well---but they are oddball quirks. For example, a good chunk of July and part of August are Value 2 Season (the second lowest) in the Disney rental calendar, but Magic Season (the second highest) in the DVC calendar. Furthermore, Disney rental rates do not track point values---smaller units rent at a premium relative to point values, and larger units rent at a discount. Probably the most glaring example is a 1BR, which is usually about 2x the points of a studio, but only about 40% more than a studio in cash rates. Add in the "typical" 30% summer discount, and you get close to break-even on renting from Disney vs. renting from an owner, but Disney has much more favorable cancelation policies and includes daily housekeeping.

 

[eidsoj42]

I have an Excel spreadsheet that I put together for this purpose. If you input about twelve variables (your points need, contract points purchased, annual dues PP, etc.) it will propagate a table and generate a break-even curve that reflects your inputs. You're welcome to a copy, however I have had nobody review my work and confirm the accuracy of my calculations so it's a use at your own risk proposition. Let me know and I can send you a copy.

 

[Anne]

I have an Excel spreadsheet that I put together for this purpose. If you input about twelve variables (your points need, contract points purchased, annual dues PP, etc.) it will propagate a table and generate a break-even curve that reflects your inputs. You're welcome to a copy, however I have had nobody review my work and confirm the accuracy of my calculations so it's a use at your own risk proposition. Let me know and I can send you a copy.

would love a copy, Thanks! should I PM my email?

 

[Anne]

Here's an example:

OKW is currently running about $65-$70 resale for an "even" (not loaded, not stripped) contract. Ownership horizon is 2042, so 27 years. Amortizing $70 over 27 years at 5% (probably too high, but...) is $4.68 per point per year. Current OKW dues are $5.84. Total cost per point for this year is $10.52. The rental market for OKW points (non-distressed) is right around $11-$12, so owning even under slightly pessimistic assumptions wins.

One of the interesting outcomes of this analysis is that the ROI on being a "DVC landlord" is pretty iffy. Suppose you are getting $12. After dues you net about $6.16, which is a pre-tax ROI of 8.8%. Okay, but not great given that renting timeshares turns out to be time-intensive. Lots of other timeshares provide a much better return---usually because their resale markets are significantly lower.

Edited to add: computing the ROI is another quick and dirty way to figure out if you want to rent or buy. If you think your long-term rate of return on investing the DVC purchase price is larger than the rental ROI, you should rent. If you think your long-term rate of return will be lower, you should buy.

Thanks so much for the calculation. I had done a rough calculation but that was with purchase through Disney (didn't have the resale numbers) and compared to rack rates for DVC 2 bedroom and found the rack rates slightly favorable. The break even there was if my initial investment could earn a minimum of 3.85% after tax/inflation.

Interesting aproach to do per point cost. It is an easier way to get the "feel" of the number and makes for easy comparison to current per point rental prices. When I did my single scenario rough calculation I did it as you would a mortgage amortization. At the end of 50 years what is the total amount I have given to Disney in each scenario? The sobering thing was both calculations were in the $380,000 range. Maybe this isn't something I really want to know...the per point calculation is much less anxiety provoking

A side question on resale. Is there much of a resale market for the newer resorts? We like being on the monorail, but again, that may change as our kids get older, right now they still need mid day naps and location becomes more important. Is there enough availability at 7 months that home resort isn't worth paying up for and better to go for the cheapest per point price? We really like the first week of December and I understand that is a popular time for DVC. Our second and third favorite times to go to the world are early February and late October. My husband would be in favor of an older resale contract with fewer years left, he's concerned about leaving the kids saddled with yearly dues if they inherit a contract with remaining years.

 

[goofyfan6698]

Thanks for posting this thread. I always thought I was ahead renting DVC.

Brian - does your example assume you go every year and that is why buying resale is worth it?

 

[MelissaD]

We were able to score 160 AK points resale for less than half what disney sells direct.... Don't regret it at all as I'm sitting in my 1bdrm BLT room for 2 weeks that would have cost over $6k.

I get get opportunity costs, dues etc etc etc... But this was a great value to us and everyone's answer will be the same.

 

[bnoble]

I had done a rough calculation but that was with purchase through Disney (didn't have the resale numbers) and compared to rack rates for DVC 2 bedroom and found the rack rates slightly favorable.

Hmm. That's surprising to me. Let's take a quick look. Again, I'm using 5% annual cost of capital. Are you using a higher CoC # and/or financing the purchase?

BLT direct purchase price is $170. The time horizon is 45 years, amortizing that at 5% gives you $9.48/pt/year. Dues this year are $5.05, for a total cost of $14.53/pt for the first year. I typically travel in Magic Season for DVC (though with some Premiere thrown in), and some mix of Peak and Regular Seasons for the rental calendar.

A week in a 2BR Lake View during Magic Season costs 386 points. At $14.53/year, that’s a total cost of stay of $5,608.58. The rack rate of that room in Regular Season is $1,215 per night, including tax, or $8,505 for a week-long stay. You’d need a discount of 35% to break even renting from Disney—not unheard of for a DVC stay, but BLT is often excluded from discounting. That’s not a bad discount, but it is still about $800 a night.

The Premiere/Peak comparison is a bit less favorable. A week in a 2BR in Premiere is 518 points, or a total cost of stay of $7,526.54. The rack rate of that room in Peak Season is $1,527, or $10,689. The DVC cost represents a 30% discount, more or less, off of rack.

So, a direct purchase isn’t a bad deal. But a resale purchase would be even better. Right now, the resale market for BLT looks to be about $100 give or take. Amortizing that at 5% the per-year purchase cost is $5.64. Adding dues you get $10.69. So a Magic week costs only $4,126.34, and a Premiere week is $5,537.42. Those are discounts off of rack of just over 50% and just under 50% respectively.

Also interestingly, the rental market for BLT is pretty robust. BLT points used to book in the home resort window are about $13-$14pp, so closer to the developer price than to the resale price.

Thanks for posting this thread. I always thought I was ahead renting DVC.

Brian - does your example assume you go every year and that is why buying resale is worth it?

You do better renting than buying direct from Disney, almost certainly. But, a resale purchase is usually at least a little bit better than renting (in the OKW case) and sometimes quite a bit better (in the BLT case). But, the analysis is cost-per-point, so it is independent of how often you go. The only real requirement for owning is that you really have to go at least once every three years, otherwise you lose points due to expiration. Once every other year is probably a safer bet, so that you don't have to hit the required points right on the nose.

 

[Anne]

Hmm. That's surprising to me. Let's take a quick look. Again, I'm using 5% annual cost of capital. Are you using a higher CoC # and/or financing the purchase?

Thanks so much for taking the time to do these calculations! This has been so helpful. I have been looking for this information off and on for several months and wasn't able to find anything that even acknowledged opportunity cost. All the calculations I've found up until now have just divided the initial investment by the number of years of the contract, added that to the yearly dues and called that number the yearly cost. I also hadn't seen the mouse savers spreadsheet, didn't even think to look there.

My approach was entirely different than yours and as I said before I think the per point calculation is more helpful, straightforward, and simpler than comparing two large numbers that represent the total dollars spent at the end of the contract. The error in my method was calculating opportunity cost for the initial DVC investment, but not factoring in the opportunity cost in the direct from Disney rental scenario. I put the initial investment away and let it grow untouched for the duration of the contract and then used the value of that account at contract maturation as my opportunity cost. In the renting direct from Disney scenario I had a greater yearly expenditure than my yearly expenditure for DVC dues but didn't view that as having opportunity cost. I should have added a credit to the DVC scenario equal to the difference between yearly DVC dues and yearly Disney rental fees that would have gone yearly to an untouched investment account growing in the same way I had calculated for the initial DVC investment. But I guess it's a pointless exercise to correct it as your method is much better.

 

[wayne]

Rookie question for this thread: My wife and I are ~53, our two kids ~25, all lifelong Disney fans. But for us this means going to Disneyland once every 4-5 years. We have never been to Orlando (which is inconveniently located over 3000 miles from home in Portland Oregon.) We began looking at DVC with the idea that it might make sense as we grow into a 3-generation family over the next 10-20 years, visiting Disney on either coast every 2-3 years with that many years' worth of banked/borrowed points. 150 points/year buys a decent splurge at 450 points every 3 years.

Is this completely insane? I can calculate ROI and NPV and opportunity cost and the emotional value factors and so on, but if it is obvious that the DVC value is only there for every-single-year vacationers, I thought one of you could speak to that right away. Assume retail; I'll contend with resale or rental later. @Anne? @bnoble? Thanks!

P.S. In late 2019 we booked a week's stay at WDW for 2020 but our trip was cancelled because some stuff happened. It was in the news.

 

[DopeyRunr]

Every 3 years for 20 years is 6 trips for about $30,000 (assuming you’re buying direct) — seems like opportunity cost might be significantly greater than the locked in “value” of $5k/trip.