Help me with the math

I love the feeling of "owning" DVC - I admit, it is an emotional connection. That being said, each point costs me roughly $8 or about $88 a night for a studio at OKW when we travel in October - just for an example. Rack rate (currently) is in the $300+ a night range or more for OKW? Renting is about half the price but risky if you end up cancelling and loosing what you paid. I'd rather own DVC than have that cash in my vacation bank account and it's much more fun to be able to dream/plan a unique vacation each year. It gives us the freedom of pre paid accommodations - our choice and not for everyone. We saw the future of DVC in 1996...still our happy place and we've made so many memories we'd never have without it. I don't think DVC is a numbers only decision - just my opinion.
 
Thanks for all the great comments and ideas. Given that I have been longing to financially justify this for the past three years, I especially appreciated this comment:
When you finally break down and purchase, remember that the DVC magnet gets ripped off by the automatic carwash so take it off before you drive in.

A couple clarifications:
1. Some folks use "rack rate" - wasn't clear to me if that means booking a room directly through Disney, or if they meant the current market rate of renting DVC points. At this point, the only way we would go to Disney would be to rent DVC points as I've always found that to be much cheaper than hotel rack rates through Disney, specifically at the 1BR/2BR Deluxe level. So the comparison is buying into DVC vs. renting DVC points.

2. I'm not really looking at DVC as an investment, but I'm comparing two different streams of expense. Stream 1 is buying into DVC and paying maintenance. That stream not only has the initial purchase price and ongoing maintenance costs, it also has an opportunity cost of lost investment income. Whether I use that income on a different vacation or not is largely irrelevant to this analysis. Stream 2 is renting DVC points as we go - though I was NOT counting lost investment income on this stream, which I will correct. I will add up both total streams, discounted to present value, and see which stream ends up costing me more.

3. I did not have point rental inflation in my model, nor did I have inflation to maintenance cost or to the point chart. My quick-and-dirty assumption is that they'd offset, but I will add those in to be more thorough.

Let's make the example more concrete so we can talk specific numbers, recognizing that there may be different resorts and room types that make more financial sense. But we like what we like, and so the question is whether or not DVC is a more financially efficient way of doing things. I would welcome corrections to my assumptions below as I am not nearly as familiar with the DVC market as you guys are.

Assumptions:
  • 1 week every 3 years, 2BR villa at Riviera during Dream Season (just for a midpoint on cost). So we will bank and borrow for each stay.
  • An initial 150 point purchase, based on current direct prices (I will toggle to resale price later, and welcome suggestions on the right resale price to use, but for now let's just get base model right)
  • 3% annual increase in point chart requirements; if I'm short on points, I rent the necessary increment, or purchase additional contracts in increments of 100 pts once the point requirements increase enough.
  • 3% annual increase in maintenance cost
  • 3% annual increase in cost of renting points (baseline of $16/pt, assume alternative is just renting DVC points, never to book the room directly from Disney)
  • 6% annual pre-tax gain on investments, or 4% net of fees and taxes
For all those 3%'s, I have no idea what the right number should be, so if someone else has a better historical sense, I'm all ears!
 
3% annual increase in point chart requirements;
Point chart requirements don’t go up like that. Points can be reallocated within the chart for a given resort, but if they increase one place they have to decrease somewhere else so that total points to reserve the resort for a year remains the same. That only happens at rare intervals - the last time was in 2010 for the 2011 points charts, when they decreased the very high weekend costs and increased weekdays to balance it. (There’s likelihood that they’ll reallocate for 2021 as well, but that’s another very complicated situation that I can’t explain clearly right now.) So the only annual increases are to MFs, not to nightly points costs.
 


Thanks for all the great comments and ideas. Given that I have been longing to financially justify this for the past three years, I especially appreciated this comment:


A couple clarifications:
1. Some folks use "rack rate" - wasn't clear to me if that means booking a room directly through Disney, or if they meant the current market rate of renting DVC points. At this point, the only way we would go to Disney would be to rent DVC points as I've always found that to be much cheaper than hotel rack rates through Disney, specifically at the 1BR/2BR Deluxe level. So the comparison is buying into DVC vs. renting DVC points.

2. I'm not really looking at DVC as an investment, but I'm comparing two different streams of expense. Stream 1 is buying into DVC and paying maintenance. That stream not only has the initial purchase price and ongoing maintenance costs, it also has an opportunity cost of lost investment income. Whether I use that income on a different vacation or not is largely irrelevant to this analysis. Stream 2 is renting DVC points as we go - though I was NOT counting lost investment income on this stream, which I will correct. I will add up both total streams, discounted to present value, and see which stream ends up costing me more.

3. I did not have point rental inflation in my model, nor did I have inflation to maintenance cost or to the point chart. My quick-and-dirty assumption is that they'd offset, but I will add those in to be more thorough.

Let's make the example more concrete so we can talk specific numbers, recognizing that there may be different resorts and room types that make more financial sense. But we like what we like, and so the question is whether or not DVC is a more financially efficient way of doing things. I would welcome corrections to my assumptions below as I am not nearly as familiar with the DVC market as you guys are.

Assumptions:
  • 1 week every 3 years, 2BR villa at Riviera during Dream Season (just for a midpoint on cost). So we will bank and borrow for each stay.
  • An initial 150 point purchase, based on current direct prices (I will toggle to resale price later, and welcome suggestions on the right resale price to use, but for now let's just get base model right)
  • 3% annual increase in point chart requirements; if I'm short on points, I rent the necessary increment, or purchase additional contracts in increments of 100 pts once the point requirements increase enough.
  • 3% annual increase in maintenance cost
  • 3% annual increase in cost of renting points (baseline of $16/pt, assume alternative is just renting DVC points, never to book the room directly from Disney)
  • 6% annual pre-tax gain on investments, or 4% net of fees and taxes
For all those 3%'s, I have no idea what the right number should be, so if someone else has a better historical sense, I'm all ears!
What is your 3% increase in point chart requirements? Disney can increase point requirements for a given day of the year, but have to reduce it on another day of the year. They can shift it around to balance supply/demand but they can not just increase points across all days. It does not make sense to build in an annual increase every year, especially if you think you’ll go different weeks every year.
 
Your original post: "Family of five, all three kids elementary age. Historically have visited 1x/3yrs, could see us going as frequently as 1x/yr, but probably not more than that." Your more recent post: "1 week every 3 years, 2BR villa at Riviera during Dream Season (just for a midpoint on cost). So we will bank and borrow for each stay."

My comments were based on your first post suggesting you and your family would be visiting more frequently than once in three years. Honestly, if once in three years is accurate, it would be very hard in my opinion to justify owning DVC - especially buying Riviera direct, knowing that the restrictions are in place. There is risk involved with all the banking and borrowing if you need to cancel - especially with three kids with differing schedules which will intensify in coming years, especially high school.

DVC is not a good fit for everyone - even those that can afford it and is best for those who are dedicated to visiting at least once a year or so, otherwise it is like having a new car in the driveway you are maintaining and paying for that you drive once every three years...it would be better in that case to rent that car, right?
 


Agree with the every 3 years issue - if you bank, use current year's points, and borrow and ultimately have to cancel, then you run the risk of losing banked points or stranding borrowed points (unavailable for your next UY... however, then you could then bank your current year's points, but I digress). The 3 year plan is risky, the every two year plan is much safer. However, even with best intentions (mine were once yearly vacations), owning DVC seems to be a slippery slope towards multiple, frequent trips (I've gone over a dozen times in the last 3-4 years, just because I had APs and DVC). Just warning you :)

Also, I saw that you have rented before - are you okay with the cancellation policies and lack of control? I am not. Call me a Control Freak, but I like to know that I have the ability to tweak my reservations whenever I need to. I like booking more days than needed, then adding or dropping days when airline pricing/schedules come out. I like stalking the RAT and trying something new or interesting that may pop up. I like being able to cancel up to 30 days out if my plans change. I can't put a price on those intangibles.
 
Do you consider lost investment income when you book your vacations now? Or when you buy a car? I don't agree with the lost investments theory. I have money i save and money I spend. My DVC money comes from the same money that I would use to replace my kitchen,not my 401K.

Ok, that said as others say your have to consider rental rates going up. When we rented points the first and only ti.e in 2010 we got them for like $12 a point. Today it seems like $16 a point is the norm. That's a 33% increase in 10 years, so make sure you are accounting for that in your calcs.
 
Do you consider lost investment income when you book your vacations now? Or when you buy a car? I don't agree with the lost investments theory. I have money i save and money I spend. My DVC money comes from the same money that I would use to replace my kitchen,not my 401K.

The reason you need to factor in lost investment income for DVC is because unlike regular vacations, your taking a lump sum of money upfront to pay for it. Your either paying for this with a loan and paying interest, or taking cash that would otherwise be invested. I doubt you would keep 30k in cash and just leave it in a chequing account and use that to pay for Disney trips for the next 30 years without investing it in something if you didn't buy DVC.
 
Thanks for all the great comments and ideas. Given that I have been longing to financially justify this for the past three years, I especially appreciated this comment:


A couple clarifications:
1. Some folks use "rack rate" - wasn't clear to me if that means booking a room directly through Disney, or if they meant the current market rate of renting DVC points. At this point, the only way we would go to Disney would be to rent DVC points as I've always found that to be much cheaper than hotel rack rates through Disney, specifically at the 1BR/2BR Deluxe level. So the comparison is buying into DVC vs. renting DVC points.

2. I'm not really looking at DVC as an investment, but I'm comparing two different streams of expense. Stream 1 is buying into DVC and paying maintenance. That stream not only has the initial purchase price and ongoing maintenance costs, it also has an opportunity cost of lost investment income. Whether I use that income on a different vacation or not is largely irrelevant to this analysis. Stream 2 is renting DVC points as we go - though I was NOT counting lost investment income on this stream, which I will correct. I will add up both total streams, discounted to present value, and see which stream ends up costing me more.

3. I did not have point rental inflation in my model, nor did I have inflation to maintenance cost or to the point chart. My quick-and-dirty assumption is that they'd offset, but I will add those in to be more thorough.

Let's make the example more concrete so we can talk specific numbers, recognizing that there may be different resorts and room types that make more financial sense. But we like what we like, and so the question is whether or not DVC is a more financially efficient way of doing things. I would welcome corrections to my assumptions below as I am not nearly as familiar with the DVC market as you guys are.

Assumptions:
  • 1 week every 3 years, 2BR villa at Riviera during Dream Season (just for a midpoint on cost). So we will bank and borrow for each stay.
  • An initial 150 point purchase, based on current direct prices (I will toggle to resale price later, and welcome suggestions on the right resale price to use, but for now let's just get base model right)
  • 3% annual increase in point chart requirements; if I'm short on points, I rent the necessary increment, or purchase additional contracts in increments of 100 pts once the point requirements increase enough.
  • 3% annual increase in maintenance cost
  • 3% annual increase in cost of renting points (baseline of $16/pt, assume alternative is just renting DVC points, never to book the room directly from Disney)
  • 6% annual pre-tax gain on investments, or 4% net of fees and taxes
For all those 3%'s, I have no idea what the right number should be, so if someone else has a better historical sense, I'm all ears!
Couple of things.

1) as others have mentioned, the once every 3 years assumption means it will take about 3 times as long as the once a year vacationer to break even.

2) as others have mentioned, it doesn't make sense to assume point requirement continue to increase annually.

3) you should however factor in annual increases to maintenance fees and point rentals. Ignoring these increases is not a net Zero assumption. The reason being is that the overall increase in cost of the DVC side of the equation is less because the upfront cost doesn't increase ever.

Overall, if your okay with the limitations of renting points and going once every 3 years, I think the breakeven of DVC would be a very long time for you.
 
I admire all those who actually look at DVC from a financial perspective, we never have. We have over 1300 points at 6 resorts, some direct and some resale and have probably spent around 100,000 on points and $10,000 a year on maintenance. I know we are lucky that we could buy for cash and didn’t miss the money. And that we can afford the maintenance fees. We go to DW at least once a year for 2 weeks and often a second time at Christmas for a week, we also go to aulani once a year for 10 days, and we often give a few days away to friends and family. Our investment guy told us long ago to never view this as an investment. If we like it, will use it and can afford it that’s the reason to buy, we have owned some points since 1998 where we got boardwalk for slightly over $50 a point and the last points we bought were last year when we sold two contracts, at AK and Wilderness, for a few thousand more than we bought them and purchased OKW resale for 100 a point because it has become our favorite resort at WDW.

We have an adult disabled daughter who still loves Disney and the characters and when we go we always bring her best friend. We might go to the parks for a day or two during a trip but we are more resort people, loving the pools and the ambiance. Our trust is set up so that after we are gone, her guardians will use the points to take her at least once a year. If we live long enough we might see some points expire and then we will need to decide if we want to extend or not.

We also do a Disney Cruise at least once a year but have never used points for that.

I figured out last year that during the past 24 month period we had used points for over 100 nights at Disney resorts, for us and friends, mostly in one bedrooms. Would we have done that if we were paying retail? No way, .
I’m not saying we are in any way financially astute about Disney but we are emotionally attached and that is what is important to us, at least for now.
 
Do you consider lost investment income when you book your vacations now? Or when you buy a car? I don't agree with the lost investments theory. I have money i save and money I spend. My DVC money comes from the same money that I would use to replace my kitchen,not my 401K.
Exactly.
 
Thanks for all the great comments and ideas. Given that I have been longing to financially justify this for the past three years, I especially appreciated this comment:


A couple clarifications:
1. Some folks use "rack rate" - wasn't clear to me if that means booking a room directly through Disney, or if they meant the current market rate of renting DVC points. At this point, the only way we would go to Disney would be to rent DVC points as I've always found that to be much cheaper than hotel rack rates through Disney, specifically at the 1BR/2BR Deluxe level. So the comparison is buying into DVC vs. renting DVC points.

2. I'm not really looking at DVC as an investment, but I'm comparing two different streams of expense. Stream 1 is buying into DVC and paying maintenance. That stream not only has the initial purchase price and ongoing maintenance costs, it also has an opportunity cost of lost investment income. Whether I use that income on a different vacation or not is largely irrelevant to this analysis. Stream 2 is renting DVC points as we go - though I was NOT counting lost investment income on this stream, which I will correct. I will add up both total streams, discounted to present value, and see which stream ends up costing me more.

3. I did not have point rental inflation in my model, nor did I have inflation to maintenance cost or to the point chart. My quick-and-dirty assumption is that they'd offset, but I will add those in to be more thorough.

Let's make the example more concrete so we can talk specific numbers, recognizing that there may be different resorts and room types that make more financial sense. But we like what we like, and so the question is whether or not DVC is a more financially efficient way of doing things. I would welcome corrections to my assumptions below as I am not nearly as familiar with the DVC market as you guys are.

Assumptions:
  • 1 week every 3 years, 2BR villa at Riviera during Dream Season (just for a midpoint on cost). So we will bank and borrow for each stay.
  • An initial 150 point purchase, based on current direct prices (I will toggle to resale price later, and welcome suggestions on the right resale price to use, but for now let's just get base model right)
  • 3% annual increase in point chart requirements; if I'm short on points, I rent the necessary increment, or purchase additional contracts in increments of 100 pts once the point requirements increase enough.
  • 3% annual increase in maintenance cost
  • 3% annual increase in cost of renting points (baseline of $16/pt, assume alternative is just renting DVC points, never to book the room directly from Disney)
  • 6% annual pre-tax gain on investments, or 4% net of fees and taxes
For all those 3%'s, I have no idea what the right number should be, so if someone else has a better historical sense, I'm all ears!

I plugged these assumptions (modified as indicated below) into a rough model:
  • 368 points needed for 1 week every 3 years, 2BR villa (standard view) at Riviera during Dream Season.
  • An initial 125 point purchase (as 150 would leave you with more than necessary, unless you wanted to do preferred view)
  • No increase in point chart requirements. As others have pointed out, that's not how the points charts work. The points are, in total, stagnant, and you shouldn't need to buy more points, though seasons might shift.
  • 3.5% annual increase in maintenance cost (I use 3.5% instead of 3% personally)
  • 3% annual increase in cost of renting 368 points on a baseline of $16/point. (I'm not actually sure if this super accurate or not, but seems fair)
  • 4% net return on investments.
  • Assuming you invest the upfront cost AND every year you invest the annual dues you would've paid on the points.
The bad news is that going every 3 years means you won't breakeven until your 11th trip, or 31 years in. Going every 2 years would have you breakeven on your 7th trip, 13 years in, and going every year would mean you breakeven on your 6th trip, 6 years in. That compounding interest on the off years really hits you hard. Others might have other ways to look at it, just wanted to offer up how I would approach it.
 
I plugged these assumptions (modified as indicated below) into a rough model:
  • 368 points needed for 1 week every 3 years, 2BR villa (standard view) at Riviera during Dream Season.
  • An initial 125 point purchase (as 150 would leave you with more than necessary, unless you wanted to do preferred view)
  • No increase in point chart requirements. As others have pointed out, that's not how the points charts work. The points are, in total, stagnant, and you shouldn't need to buy more points, though seasons might shift.
  • 3.5% annual increase in maintenance cost (I use 3.5% instead of 3% personally)
  • 3% annual increase in cost of renting 368 points on a baseline of $16/point. (I'm not actually sure if this super accurate or not, but seems fair)
  • 4% net return on investments.
  • Assuming you invest the upfront cost AND every year you invest the annual dues you would've paid on the points.
The bad news is that going every 3 years means you won't breakeven until your 11th trip, or 31 years in. Going every 2 years would have you breakeven on your 7th trip, 13 years in, and going every year would mean you breakeven on your 6th trip, 6 years in. That compounding interest on the off years really hits you hard. Others might have other ways to look at it, just wanted to offer up how I would approach it.

$16 to rent RIV points is not realistic...especially for a standard view room. It's going to need to be in the $19 range right now to have a chance at standard -- and probably at least $18 for premium view.

The other thing that this financial model does not take into account is lack of control. If you own the points -- you'll have a much better shot at getting a standard room -- which saves at least 10 or 20% each trip -- whereas renting points, you're going to have a much tougher time finding an owner that is willing to walk a reservation...and if they do, they'll want a premium to do it.

Lastly -- if you want to really make it more accurate -- I would keep the MF increase for the first 3 years negligible and then 3.5% after that. They do not seem to go up much, if at all, in the beginning...at least that seems to be the case for the last 3 resorts.
 
Nothing about DVC or visiting WDW makes financial sense. I understand the need to try to justify it to yourself, but really, none of this makes any sense at all. If you want to buy into DVC and have the means, then go ahead. You don't need a spreadsheet to tell you it's OK to spend your own money on something you want.

If you're only visiting every 3 years though, I wouldn't buy into it. I'd just rent. Odds are you'll visit 3 times or less before you sell the contract.
 
Thanks for all the great comments, it's been very helpful. As I stated upfront, I fully appreciate that there are all sorts of non-financial reasons to buy or not buy, but for the purposes of this post I really just wanted to understand the math, pure and simple. And now I think I do.

I ended up modeling as I described previously, except I did increase the cost to $19/pt as I agree that looks like the market rate for 11mo reservations right now. I also ended up toggling off investment losses for maintenance and rental expenses, and left it on just for initial purchase price. My thinking was similar to CanadaDisney's: while I would factor maintenance or renting points into my annual budget and thus take that money from my paycheck, any meaningful 5-digit amounts I would draw out of our portfolio - hence the lost income. Additionally, for the same reasons, I didn't draw down on those investment gains with the rental expense, because I would pay for that cost out of my paycheck, not by going into our portfolio and making withdrawals.

At 4% investment gain, I broke even after trip #8. If I changed from $188/pt purchase price to $130 (assuming a resale), the cutover was after trip #5.

The biggest factor I had not previously considered was the inflation on the cost of rental points, so that was a great call-out. Also, I picked Riviera just to build the model since it's the new offering. Now that I understand the restrictions, I probably would not actually purchase there if we went forward.

Thanks for all your help!
 
Additionally, for the same reasons, I didn't draw down on those investment gains with the rental expense, because I would pay for that cost out of my paycheck, not by going into our portfolio and making withdrawals.
Your adding outside money into a closed system on one side of the equation only, which is not a fair comparison.

Example)

Option 1) Spend 100K on DVC over 40 years (Purchase Price + Maintenance Fees)
Option 2) Invest 100K in a broad market ETF for 40 years. Then pay out of pocket for Disney trips using 100K from your budget.

Option 1 = 100K total investment
Option 2 = 200K total investment.

Option 1 would have to be that much better to end up with more money at the end of the timeline because it is starting with half the investment.

While I understand the sentiment, this is probably not how it would work out in real life. No, you are probably not going to take the money you would have invested in DVC and create some sort of fund and withdraw from it annually to cover DVC. In reality, what would likely happen is, you would take that upfront lump sum and invest it. Since your investments are now that much further ahead, over the long run, you will reduce the amount you are adding in, which would then be redirected towards your normal budget (which includes Disney hotel costs). It's basically the same thing in an indirect method.
 
I don't think DVC is a numbers only decision - just my opinion.

Oh I don't think anyone is saying it's numbers only. You need to realize in 2019 vs 1995 it's a drastically different decision.

Nothing about DVC or visiting WDW makes financial sense.

Ummmm actually it makes perfect sense. If DVC cost < hotel stay then it makes sense. You can add in other things to the equation if you want or choose.

I mean I can buy DVC shirts, magic band, hats, and mugs without owning DVC. So I can act like I am a member and actually have more choices when going to book my hotel. Pay a little more for an AP, get a Disney Visa, TIW and you basically have all the benefits covered except for extremely limited time and quantity special events.
 
Nothing about DVC or visiting WDW makes financial sense.
If your sole goal is to accumulate wealth, then no, DVC does not make financial sense. Then again, spending money on anything other than survival/wealth accumulation does not make financial sense.

If your goal is to find the most economical way to stay in DVC Deluxe Resorts, then yes, DVC can make financial sense.
 

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