Breaking Even

Discussion in 'Purchasing DVC' started by hlhlaw07, Jan 11, 2018 at 1:23 PM.

  1. DSLRuser

    DSLRuser Age is a state of mind

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    yes kniguy...in this situation...i did not factor in a rise in fees over 50 years.

    to me, i expect my own income to continue to grow.....so MF todays I can afford....i will assume i can afford MF in years to come.

    I may be wrong...but i expect there will be a cap that MF will not be supported above. No idea what that is.....but $40 a point...would never fly.
     
  2. buzznina

    buzznina DIS Veteran

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    I see a lot of very creative (I will steal Bing Showei's great term) "Mickey math" going on here:laughing:
     
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  4. 4luv2cdisney

    4luv2cdisney DIS Veteran

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    Only time will tell. Even if dues are $40 / pt. it will likely "feel" the same as your $7 dues do today. I find calculating / projecting into the future just complicates things. If you're going to assume those annual increases in dues, what are you going to assume for your annual increase in wages? What will the regular hotel rooms cost? How much will point rentals be? You are not going to be right on your projections over a 50 year time span.

    I remember a time when I thought "If we only made $XX,000 we'd be set. That number is laughable now.

    It's much simpler and IMO accurate to just consider costs in today's dollars.
     
  5. kniquy

    kniquy DIS Veteran

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    Good point in looking at it as in what you can afford. Just as people might complain about increasing maintenance fees, but the direct Disney hotel rooms will increase in price as well. It is all relative and what it all really boils down to is if you can afford it and if it creates lasting memories for you and your family -- you can not put a price on that.
     
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  6. supersnoop

    supersnoop What time is the three o'clock parade?

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    Then you need to compare it to hotel rates in future value, too. The present value of the future payments, when the rate of growth equals the rate of return, is exactly what was calculated.

    In other words, in order to pay your dues for 50 years, you’re essentially taking out a 50 year loan for dues*50 today, at an interest rate equal to the rate of dues growth. Your annual payment on such a loan equals the cost of dues in that future year.
     
  7. hlhlaw07

    hlhlaw07 Earning My Ears

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    Well this thread turned out just how I thought. I wasn’t asking because I was trying to determine if I can afford DVC. I can. To me thinking about breaking even is more akin to going shopping because there is a big sale and then looking at the bottom of the receipt to see how much money I “saved.” I know I didn’t really “save” any money and instead the shopping trip cost me money. But I still like to look. I’m not sure what calculation I would use to determine as in the past we have paid various rates to include rack rate on a 2BR Villa at Thanksgiving, military rate on a 2BR Villa, 40% pin code on a 2 BR Villa, and rented points for a 2BR Villa. With those different rates, I could come up with a break even in a couple of years to a break even in 10-15 years. And, I do not take into account opportunity cost on the buy in because if I didn’t buy, the cash, much to my husbands chagrin, would literally be sitting in my bank account earnings a non-existent interest rate.
     
  8. mustinjourney

    mustinjourney DIS Veteran

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    my 25 point add on at BCV will have paid for itself after 5 years since it "saves" us $800 a year. After that -- it's actually MAKING us money and that's not counting the value of the points.

    hahahaha
     
  9. mustinjourney

    mustinjourney DIS Veteran

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    Kind of like Dr. Evil asking for $1 million in 1999. hahaha

    [​IMG]
     
  10. frabjous

    frabjous Mouseketeer

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    Precisely. MFs are driven by operational costs, and those operational costs are based on a similar labor pool and resource pool as the hotels standing right next to them.
     
  11. kboo

    kboo DIS Veteran

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    Lots of truth in all of these, and @icc2515's post may be the truest and funniest of all.

    For us -
    I could take our already planned trips - 5 nights in February (1BR BLT) and 5 nights over Thanksgiving (2BR BLT), sell my stripped contract and essentially break even - so 10 nights in 2018 are "free".

    We are the ones who were going at least 1x a year for a week, staying in deluxe hotels on PIN codes and other special discounts at 25-30% off. With these deals -which almost always come out less than 7mo in advance and never during school breaks, we could usually get a deluxe hotel room for an average of $300/night (GF was more, BWV was less). By renting points, we could get roughly the same rate in a BLT LV studio (averaging 20pts/nt at $15 per point in late August).

    So, with careful searching for discounts, we could probably have gotten roughly the same rate renting points or hunting for discounts, or approximately $2100 per week for lodging in a studio.

    Super-rough estimate:

    One could book the same period (BLT LV studio) annually for about 150 points per year (7-8 nights x 20 points). We paid $106 per point, so if we'd bought 150 points that would have cost $15,900. Let's round up to $18,000 to include closing costs (I have no recollection what they actually were). Dues on 150 points estimated at $6 x 150 = $900/year. So "offset" the $1200/yr savings into $18,000 purchase price - takes 15 years to recoup the purchase price, assuming no inflation or time value of $.

    The reality is, though, that we bought more than 150 points, are going to stay in 1-2BR going forward, are going 2x in 2018, and we don't have to hunt for "bargain" times or finding a rental. But given that DH and I did not really take true family vacations before this and work really stressful and busy jobs (still in the office after 7, though somewhat my fault), DVC forces us to plan and take true family vacations rather than trying to jam a vacation into a conference somewhere. And, if we were to go to Disney during school breaks, we'd likely be paying $500 and up to stay in the same deluxe hotels.

    We are older parents, so all of this is happening when many of our peers are going through their midlife crises. So another way to look at this is- we are paying FAR less out of pocket than we'd have paid for a little sports car, and DVC is a heck of a lot more kid-friendly than a coupe with no room for car seats in the back. And it holds its value better!

    Edited to add: and no way would we have ever booked a 1BR or larger with just the 4 of us, on a cash reservation. While we certainly could afford it, it just didn't feel like value for us - not sure why that is. Maybe because growing up, I felt like that was what "rich people" did - we always stayed off site in the Days Suites, which felt luxe to me as a kid.
     
    Last edited: Jan 12, 2018 at 9:10 PM
  12. Best Aunt

    Best Aunt "That's the best-est present ever!"

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    I keep track of purchase price plus dues versus what the rack rate would have been for the trips I have taken since I bought into DVC.

    It took 9 years to break even.

    That's ignoring the fact that I could have rented points, which would have been cheaper than rack rate.

    It's also ignoring the fact that there might have been discounts on the rooms.

    But that's the way I've been looking at it.
     
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  13. crisi

    crisi DIS Veteran

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    We stay in bigger rooms, but it costs us more because we now stay in a two bedroom. And the rooms aren't nearly as nice as the Deluxes we paid cash for, IMHO. But we get to have the kids in a different bedroom - and now that they are young adults, we can take friends or they can go on their own. And since we bought back in early 2001, we paid very little for our contract.

    To me, break even is simply a fun exercise for accounting geeks. It has no real value. If you can afford DVC and get value out of it - however you measure value - over paying cash for a room, its a good deal for you. If you can't afford it or don't get value out of it, it isn't.
     
    Last edited: Jan 13, 2018 at 10:14 AM
  14. crisi

    crisi DIS Veteran

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    I remember when a can of pop was $.25. If you would have told me people would be willing to put a whole dollar in a vending machine for a can of pop, I would have thought you were crazy. Inflation is exponential function, numbers can get big fast.
     
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  15. Bing Showei

    Bing Showei Mouseketeer

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    And this is largely my point about DVC. By nature of the DVC design (a huge revenue generating apparatus), buying in will change your WDW travel patterns. I'm not saying it's a bad change, but you do end up buying way more Mouse than you have in the past.

    Whenever a new thread pops up about "saving" or "breaking even" I'm not intentionally being obtuse about people wanting to know when the equivalent stay over time will equal the money they put in, it's a matter of: What is the equivalent? And What do you use to measure DVC costs against?

    Like most others, my belief is that it should be a measure of costs "with DVC" vs. "without DVC." Where I split with others who have posted to these kinds of threads is that the "without DVC" factor should be reflective of your past purchases that show a DVC like pattern of consumption, or a trend towards that. Because this is a true reflection of your spending habits before the influence of DVC changes you.
    This was never my point about the savings. As those grocery savings are real savings over buying the same item which you would've purchased anyway and have shown a history of purchasing.

    I would rather use the analogy of a crack dealer who sells in bulk.

    It costs more to buy 8 oz of crack up front than than several eight balls every week, but as an addict, that definitely save me money. By my estimates, 50% because I buy crack regularly anyway! Plus the guy makes it so easy, delivering to my house regularly. Bro-hugging me every time he sees me. In fact, I'm thinking about doubling my order when I have enough money. There are even crack parties I can attend if I join. Free crack! I just have to pay for the Uber to get there.

    If a crack addict asked me if they should buy in, I would be all, "Definitely. I'll refer you. I get a bonus." Their addiction is a good match for the bulk purchase.

    If someone who dabbles occasionally (because that's how crack works) and enjoys it and wants to join, on paper, you can work out the math of how much, if they were to save buying in bulk over buying the same amount spread over the commitment, but the truth is they'll end up buying more because by the nature of crack, it feeds your desire to have more of it and the dealer makes it so readily available.

    I use this analogy not to disparage Disney. I love that I bought in. I would love to get more points. I love the time I've spent there the last three years with my family and look forward to the years to come. But I'm honest about this relationship. As much as I get out of it, DVD is in the business of making money. Most owners won't be saving money over what they would normally do without DVC.

    The exercise of calculating cost break-even is an academic one. We all have the spreadsheets with formulas that calculate for rising costs, opportunity costs, etc., built into it. But every single one assumes we would, without the influence of DVC, go to Disney every year for the next 25-50. That seems like a faulty premise which compromises the whole thought exercise. Does it make us feel better about buying in? Maybe. But like all things Disney, it's the magic of illusions.
    As soon as you post a thread on the forum it becomes a piece of public information. In no way was I insinuating that you, personally, couldn't afford DVC, only that anyone else reading this should think about the TRUE cost over time. Someone who's thinking about buying will happen upon this thread and as a community, we have a responsibility to dispel what we see as misinformation, just as others will counterpoint my assertions here. Telling people they can calculate breakeven by doing x calculations without taking into account their personal travel history is misleading.
     
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  16. kboo

    kboo DIS Veteran

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    I totally do what @hlhlaw07 does - look at the receipt at a store and figure out how much I "saved". And I will admit that after I booked our President's week trip in a 1BR, I looked at the rack rate ($900+ per night!!) and thought, "Wow, I am saving so much!!" (setting aside the fact that we would never have gotten a 1BR villa if we were paying cash, even at a 30% discount. Just, no. But the "value" we derive is intangible, as others have said. Even on our last trip, which was on rented points although we were already owners, we were much more relaxed even about our park days - because we knew we'd be back. It made for a more rewarding trip because there wasn't the pressure to see and do EVERYTHING. Do we spend more on our trips? Eh... it's probably about the same or less. We will probably cook *a tiny bit* more, especially once we are not staying in studios. Now it seems like our patterns are turning into 3 trips every 2 years, even before buying in, so we are probably the right fit for what we bought. We just upgraded a bit by getting points for 1-2Br and making our trips a little nicer.
     
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  17. crisi

    crisi DIS Veteran

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    Some of us lived through the 2008 crash on this board. In 2007 people were buying contracts resale at ridiculous prices (sound familiar?), and the numbers that were flying around about saving money really made it look like you'd be stupid not to take out a second mortgage on your house to buy more points to feed your addiction. You could always sell at more than you bought in for (sound familiar?) or rent out your points if you were having a bad year - and it was hard to get anyone to look at reason. People justified far more points than they could afford - or really "needed" using numbers that were bubble numbers. Then people lost their jobs, and some of them lost their homes, and many of them lost their DVC while in the hole on their DVC loan because, of course, the DVC market crashed.

    That was about the time myself and others started using the logic you are using more than it had ever been used on this board. I think those of us who were having fun with numbers then did a disservice to the potential buyer looking for an excuse to justify a purchase - which, as you said, isn't always the person asking the question.

    So @hlhlaw07, its unlikely that anyone is making judgments about you or what you can afford - we don't know. But from experience, you won't be the only person who reads your thread - and chances are that someone is reading this thread blinded by pixie dust, who is about to have their first baby, with a job that might not be there next year, and a brand new mortgage, and student loans - intent on "making this work." And if they are disappointed or burdened by DVC once they are in, I don't want the karma for that.
     
  18. frabjous

    frabjous Mouseketeer

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    If you really want to implement this plan, you should say “Don’t go to Disney, save your money”. :)

    The problem with blanket statements based on the presumptions of a random reader’s inability to afford DVC is that they aren’t useful, and will probably be ignored.

    On the other hand, facts and financial models are useful, and may actually help a reader with evaluating their purchase options. For example, it’s more useful to point out that a model relying on selling a contract should factor in market events than to use pejoratives like “pixie dust” and suggest all numbers are invalid.
     
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  19. crisi

    crisi DIS Veteran

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    There is a very big difference between each one time trip to Disney and a commitment to a DVC contract that is going to cost you $20k up front and then the cost of Disney and dues every year. If you make the decision each year "can I afford to go to Disney" and go, that's a whole different decision than "can I afford to regularly go to Disney for the foreseeable future."

    DVC ownership requires the second, but "magical" numbers can really mislead. Buying DVC with debt, and having to sell it at a loss isn't a cost in the past - its a future cost - a commitment to a spend that you can't keep.

    There are some assumptions with purchase that you need to be careful of. "I can always rent my points" - in 2009 some people found that their points wouldn't rent - fewer people were going to Disney and Disney was discounting. "I can always sell for as much as I bought" - once again, if we crash, one of the first things that will see a huge reduction in price is the cost of DVC resales. If your justification for purchase if something goes wrong - you get sick, you lose your job, you get divorced - is that you'll be covered by these things - caution should be exercised. These risks go down significantly over the life of your ownership - we've owned 15 years and at this point have all the value we need out of the contract (even though I believe we spent more money than we would have) so if we had to let Disney repossess the contract tomorrow, I'd still feel like I got a good deal. But for the first few years of ownership - if you have to sell, you risk a loss.

    Now, I wouldn't presume anyone should skip Disney and save their money - that's all or nothing thinking. After all, I own DVC and take vacations and have been to Europe twice in the past two years and am planning on another trip in September. My husband just flew to Germany for a weekend to see a concert. I believe that life is a matter of balance. And I also think the majority of DVC owners that post here can afford DVC. But as I said, I also don't want the karma of someone who can't afford it buying, having to sell at a loss, and putting themselves behind the eight ball in terms of regaining their financial security. A lot of DVC gets sold in bankruptcy. I would never want my advice being a contributing factor to someone having to go through that. I have no idea who will read these words, so I try and choose them carefully. Your opinion may be different and you might think that isn't your responsibility. That's fine, too.

    Most people go into a purchase like this assuming that life isn't going to throw them a curveball. But my life has been full of some very expensive curveballs.
     
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  20. supersnoop

    supersnoop What time is the three o'clock parade?

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    I disagree. You can make the decision to go ever two or every three years and still make DVC work. You could even go less often thanks to the thriving rental market. Just rent out your extra points when you don’t want to (or can’t afford to) go.
     
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  21. kboo

    kboo DIS Veteran

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    So agree with @crisi here. To the point that, at a minimum, I go with the blanket statement that one should never finance a DVC purchase (we don’t buy cars on credit either).

    Actually your thoughts here are making me think. We are now in the process of buying VGF points at $135 per point. Saw a recent broker listing VGF resale contracts at $170 and up. At first I was kicking myself for not buying another contract at $135 or close to it. But the likelihood we will “need” more points won’t come up until at the earliest 2021 or 2022. Who knows what the economy will look like by then? So now, I wait and use the points I have and I’m happy with what I have.
     
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