Yes but how would 6 trips of $5K be any different than 20 trips of $1500 in the analysis? That's what I'm trying to determine.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.
If you *knew* you were going every year consistently, BUT one time, you couldn't go, the opportunity cost is minimal. If your plans had to change, you could bank those points and maybe take two trips next year, or one longer trip, or reserve a larger room...Yes but how would 6 trips of $5K be any different than 20 trips of $1500 in the analysis? That's what I'm trying to determine.
Exactly! Frequent regular value extraction beats infrequent future value extraction.Prepaying for DVC "costs" more the longer you withhold from using the benefit.
Maybe changing this is your answer. And perhaps paradoxically, it the thing I have found most beneficial to owning timeshares.With only one real vacation per year (at most - we're American after all)
Sorry to resurrect a 6 year old topic, but I came across your analysis while building a spreadsheet for my own personal DVC buying decision, and I was intrigued by your approach. I'm an accounting novice, so I was wondering if you could explain the "cost of capital"/amortization piece as it relates to a DVC investment.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.
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.
By "Total Points Remaining" I mean the total points remaining on the life of the contract (number of years*pts per year), so I am taking number of years remaining into account.you can probably find pretty comprehensive explanations for those concepts elsewhere online, but I'd point out that you don't have any factor for "years remaining" in your equation, and you appear to be counting only a single year of dues per point rather than multiplying that times the length of the contract and including a factor for inflation (5-7% recently).
Thanks, I figured out the math really quick, but it's more of the concept as it relates to a DVC investment that I'm trying to wrap my mind around. Does running the amortization numbers attempt to give you a realistic idea of what inflation will do to your investment over a long period of time, or is it attempting to calculate the opportunity cost of not investing the money?One quick-and-dirty way to figure out the amortization schedule: imagine you were borrowing the purchase price, paying it back as if it were a loan at <whatever>% for <years-until-expiration>. Any loan calculator will give you the numbers.
Not really because there's a big difference in terms of time value of money between a 2000 point contract with one year left and a 50 point contract with 40 years left. Additionally, those dues of $7.05/point will be $47/point in 40 years after 5% compounded inflation.By "Total Points Remaining" I mean the total points remaining on the life of the contract (number of years*pts per year), so I am taking number of years remaining into account.
Thanks a lot for the explanation! That really clears things up and seems like the best way to think about the investment.I do it to compare two alternatives:
1: Buying a DVC contract (a purchase price plus annual maintenance fees) and using it for some sequence of stays
2: Renting exactly the same stays as #1 on a pay-as-you-go basis.
For #2, imagine you take the purchase price and invest it in say an index fund. Then at the beginning of each year you add to that account what you would have spent on maintenance fees. Then, you pay market rate to rent your stay (from Disney, another DVC owner, etc.) deducting that amount from that account.
There are two possible futures: either the balance in #2 eventually goes negative, or it never does. If it never goes negative, buying will never save you money over renting, and you should dismiss it out of hand. (For example, I don't think a direct purchase of BCV makes any sense at all for anyone at this point.)
If it does go negative, the question is: How long does that take? How confident are you that your life circumstances won't change during that time in a way that materially impacts your desire/ability to vacation at WDW? If you are confident, then the purchase might make sense.
Ultimately, the value proposition of a timeshare is that you commit to regular vacations in a particular resort/resort system for many years, and in exchange you get a discount on your lodging. The developer likes that because they get to amortize the cost of customer acquisition across the entire lifetime of an ownership. The customer likes that because they save money vs. renting as they go---assuming they go often enough and long enough to make it pay off.
Sorry, I thought you were just saying I ignored number of years entirely. I do realize that compound interest and inflation are things that exist, but I wasn't sure on the best way to account for them in order to make a decision on this investment. Thanks for your input!Not really because there's a big difference in terms of time value of money between a 2000 point contract with one year left and a 50 point contract with 40 years left. Additionally, those dues of $7.05/point will be $47/point in 40 years after 5% compounded inflation.
Ayup. I've said it before, but I am quite sure that owning timeshares has not saved me money over just leaving myself to my own devices and paying as I went.Of course that doesn't factor in the cost of tickets, transportation, meals, merchandise, etc, which if we are being honest add up to the cost of many vacations on their own.
I phrased it poorly, I should have said lodging at Disney has cost us $6182 using DVC. To figure out the value received for that $6182, I would need to figure out how many nights we have stayed at Disney since 2013 and the rack rate for each date we were there. That is way more effort than I need to expend, particularly when I am procrastinating on my real work.To get a true sense of cost, shouldn't you discount your adjusted expenses by the value received for the points you used (maying using a Moderate rack rate as proxy)? That would reduce your break-even significantly.