Poll: Are you going to buy at Riviera

[MickeyMinnieMom]

I'm curious, and this is an honest question not a veiled shot...in your mind how close to parasitic are starting dues of $8.31 per point?

Pretty much there...

 

[Bing Showei]

I agree that is the construct of DVC. But you have to acknowledge that many of our experiences have been directly contrary to that, which makes it hard for us to shift our thinking back to what you describe above. Even though what you say is factually accurate, we have been conditioned to think otherwise. It's a bit of a paradox.

Our experiences, or our interpretation of the experiences? I think in 1991, there may actually have been an interest in doing something radically different and creating the feelings that zirivan spoke to, but not soon thereafter when the seedling of an idea for SSR was put on the table, I think that fundamentally changed. It may have been even earlier, I'm not sure. But with SSR, the relationship between DVD and DVCMC began to be leveraged for profit more heavily.

Look, I fully acknowledge that I have swung to a new cynical extreme, but decision making around buying into Disney's timeshare is much safer when made from this place, for me. There's probably safe room to come back before falling into naiveté, but this is where I am.

I'm curious, and this is an honest question not a veiled shot...in your mind how close to parasitic are starting dues of $8.31 per point?

For me, it's not a dollar value. It's all relative to what my family is getting out of it.

So as long as I don't mind paying my dues because my family enjoys going to Disney, I'll consider the dues, whatever they are, to be a part of my symbiotic relationship with Disney's timeshare. If the parks continue to add rides, new resorts continue to interest us, and we enjoy our time at WDW and the timeshare rooms, the ADs could be $14/point and if we're still going, we would clearly see it's worth it.

As soon as that changes, where we're going less and less or the joy of being at WDW starts to wane, that's when I'm no longer benefitting from the relationship. ADs could be $7/point and I would consider it parasitic.

Everyone has their own breaking point, assuming Disney turn up the heat slowly enough that we're slowly boiled to death, I'll gauge value based on how much we look forward to being at WDW on our timeshare points.

 

[ELMC]

Our experiences, or our interpretation of the experiences? I think in 1991, there may actually have been an interest in doing something radically different and creating the feelings that zirivan spoke to, but not soon thereafter when the seedling of an idea for SSR was put on the table, I think that fundamentally changed. It may have been even earlier, I'm not sure. But with SSR, the relationship between DVD and DVCMC began to be leveraged for profit more heavily.

Look, I fully acknowledge that I have swung to a new cynical extreme, but decision making around buying into Disney's timeshare is much safer when made from this place, for me. There's probably safe room to come back before falling into naiveté, but this is where I am.

For me, it's not a dollar value. It's all relative to what my family is getting out of it.

So as long as I don't mind paying my dues because my family enjoys going to Disney, I'll consider the dues, whatever they are, to be a part of my symbiotic relationship with Disney's timeshare. If the parks continue to add rides, new resorts continue to interest us, and we enjoy our time at WDW and the timeshare rooms, the ADs could be $14/point and if we're still going, we would clearly see it's worth it.

As soon as that changes, where we're going less and less or the joy of being at WDW starts to wane, that's when I'm no longer benefitting from the relationship. ADs could be $7/point and I would consider it parasitic.

Everyone has their own breaking point, assuming Disney turn up the heat slowly enough that we're slowly boiled to death, I'll gauge value based on how much we look forward to being at WDW on our timeshare points.

Great points all around, and I apologize for not being more clear on my first point. When I speak about "our experiences" I was referring to the financial aspect of owning DVC not the emotional one. Through experience I (and many other owners) have been conditioned to think of DVC as a place to park my money so that I can save annually on great DVC accommodations and then sell the contract for more than I paid for it when the time comes. That's a COMPLETELY UNREALISTIC expectation, but it's all I've known. So shifting my thinking to the proper way, the way that many people already are thinking, is going to be difficult for me. Fortunately I have always bifurcated visiting Disney and staying in DVC, so it will be possible for me to do the former without having to do the latter.

 

[DougEMG]

So exactly what is the breakeven timeline for buying direct at the RRV? Anyone calculated this yet and if so what assumptions did you make?

When I originally bought DVC, I calculated the breakeven point at 7-8 years. Keeping detailed accounts of everything I do related to owning DVC, that time frame proved to be correct.

Now I was paying $50-$60 a point for loaded contracts and renting out those extra points to bring the costs down even further. So it seems pretty clear that buying RRV, especially with the high starting MF is going to have a much, much longer breakeven point. If we assume that the average owner only holds 10 years, then unless that owner can sell to get some/most of their original costs back, they are going to be underwater. How many buyers have bought DVC because they knew or had heard that they can sell and get out with most of their money back so they were more comfortable buying knowing they had a way out without losing their shirt.

I just bought a BLT contract a few months ago and when we were making the decision to buy or not to buy, one thing my wife (who doesn't know much about DVC, she leaves all that to me) said was that if we changed our mind later we could always sell and get most of our money back, so we might as well go ahead with the purchase.

 

[crvetter]

So exactly what is the breakeven timeline for buying direct at the RRV? Anyone calculated this yet and if so what assumptions did you make?

When I originally bought DVC, I calculated the breakeven point at 7-8 years. Keeping detailed accounts of everything I do related to owning DVC, that time frame proved to be correct.

Now I was paying $50-$60 a point for loaded contracts and renting out those extra points to bring the costs down even further. So it seems pretty clear that buying RRV, especially with the high starting MF is going to have a much, much longer breakeven point. If we assume that the average owner only holds 10 years, then unless that owner can sell to get some/most of their original costs back, they are going to be underwater. How many buyers have bought DVC because they knew or had heard that they can sell and get out with most of their money back so they were more comfortable buying knowing they had a way out without losing their shirt.

I just bought a BLT contract a few months ago and when we were making the decision to buy or not to buy, one thing my wife (who doesn't know much about DVC, she leaves all that to me) said was that if we changed our mind later we could always sell and get most of our money back, so we might as well go ahead with the purchase.

I'd have to go back and refine my calculation bit more. However, assuming dues increase at 4% a year/year, 3% increase in rack rates, assume 20% off rack rate for a deluxe resort (I assumed only 20% b/c that is all I was reliably able to get for times I traveled), assumed 200 points purchased (so I think it was ~4.5k in incentives) I found the break even around 12-13 years (assuming no resale value of the contract). For me break even meant the money spent up until the point on DVC is cheaper than that spent on cash rooms (the cash rooms assumed an investment of the capital cost of DVC into an annuity that was providing a 5% return so that I got an equal 1/50th payment each year to put into the cash vacations). Of course, if you assume some level of resale at X year, then break even happens quicker but does require the contract to be sold to realize that breakeven point.

I think this is inline with what others reported on here too.

Edit: I want to add that this is overly simplified of a calculation to a degree and ignored some things that would reduce the breakeven time by a very small margin (i.e. reinvesting the savings of the yearly DVC cost vs cash cost into a savings account).

 

[ELMC]

I'd have to go back and refine my calculation bit more. However, assuming dues increase at 4% a year/year, 3% increase in rack rates, assume 20% off rack rate for a deluxe resort (I assumed only 20% b/c that is all I was reliably able to get for times I traveled), assumed 200 points purchased (so I think it was ~4.5k in incentives) I found the break even around 12-13 years (assuming no resale value of the contract). For me break even meant the money spent up until the point on DVC is cheaper than that spent on cash rooms (the cash rooms assumed an investment of the capital cost of DVC into an annuity that was providing a 5% return so that I got an equal 1/50th payment each year to put into the cash vacations). Of course, if you assume some level of resale at X year, then break even happens quicker but does require the contract to be sold to realize that breakeven point.

I think this is inline with what others reported on here too.

Edit: I want to add that this is overly simplified of a calculation to a degree and ignored some things that would reduce the breakeven time by a very small margin (i.e. reinvesting the savings of the yearly DVC cost vs cash cost into a savings account).

Interesting, thanks for sharing. I actually think you might be a little too conservative here, because I'm not sure for the near future that any discounts will be available on Riviera rooms...but I could be mistaken.

Quick favor to ask...rather than reinvent the wheel, I was hoping I could ask you to plug a different variable into your spreadsheet (which would also serve the purpose of keeping everything else constant). Instead of the alternative being booking a room at 20% off, could you make it $18*p where p=number of points needed to book a particular room (let's say preferred studio/Dream season to be somewhat in the middle)? What would that do to the break even point in your calculations? Thanks!

 

[MickeyMinnieMom]

I'd have to go back and refine my calculation bit more. However, assuming dues increase at 4% a year/year, 3% increase in rack rates, assume 20% off rack rate for a deluxe resort (I assumed only 20% b/c that is all I was reliably able to get for times I traveled), assumed 200 points purchased (so I think it was ~4.5k in incentives) I found the break even around 12-13 years (assuming no resale value of the contract). For me break even meant the money spent up until the point on DVC is cheaper than that spent on cash rooms (the cash rooms assumed an investment of the capital cost of DVC into an annuity that was providing a 5% return so that I got an equal 1/50th payment each year to put into the cash vacations). Of course, if you assume some level of resale at X year, then break even happens quicker but does require the contract to be sold to realize that breakeven point.

I think this is inline with what others reported on here too.

Edit: I want to add that this is overly simplified of a calculation to a degree and ignored some things that would reduce the breakeven time by a very small margin (i.e. reinvesting the savings of the yearly DVC cost vs cash cost into a savings account).

Not that different from my bottom line calculation (I landed a little under 15yrs) though I had some different assumptions.

You mention you didn’t include reinvesting yearly savings — I think that’s really minor and is dwarfed by the initial opportunity cost of capital up front in the early years assuming an NPV analysis. If I assume anything much over the paltry interest earned in the bank these days, the break even shoots WAY up — as high as 40yrs. I assume Disney excludes this in their analysis — or gets really creative with some other toggle!

 

[DougEMG]

So I was playing around with some numbers to see which was the cheaper way stay and if you compared the following two options

1. Buy at $188/point with MF of $8.31. Assumption is MF increase 4%/year.
2. Invest the $188 and used that money to rent the points. Assumptions are investment return is 6% per year and rental rates start at $18/point and increase 2%/year.

After 15 years you run out of money. Now option 2 has more assumptions so more variables that can throw everything off.

There was a point in time when you could buy cheap DVC points, rent them out and make a fairly good return even with the end value of the contract going to $0; think of it as an annuity. Back then, one could easily look at owning DVC as an investment, but those days are long gone.

 

[Mumof4mice]

I'd have to go back and refine my calculation bit more. However, assuming dues increase at 4% a year/year, 3% increase in rack rates, assume 20% off rack rate for a deluxe resort (I assumed only 20% b/c that is all I was reliably able to get for times I traveled), assumed 200 points purchased (so I think it was ~4.5k in incentives) I found the break even around 12-13 years (assuming no resale value of the contract). For me break even meant the money spent up until the point on DVC is cheaper than that spent on cash rooms (the cash rooms assumed an investment of the capital cost of DVC into an annuity that was providing a 5% return so that I got an equal 1/50th payment each year to put into the cash vacations). Of course, if you assume some level of resale at X year, then break even happens quicker but does require the contract to be sold to realize that breakeven point.

I think this is inline with what others reported on here too.

Edit: I want to add that this is overly simplified of a calculation to a degree and ignored some things that would reduce the breakeven time by a very small margin (i.e. reinvesting the savings of the yearly DVC cost vs cash cost into a savings account).

Yeah quick calculations show that the 25% standard and 75% preferred is likely exactly where this will end up. They will declared 6,739,966 for DRR, which is for 51 weeks, so for 52 weeks it would take 6,872,122 points

We know the following Room Totals
24 Tower Studios
38 Studios
29 1 Beds
148 + 90 2 Beds
12 GVs

We know to reserve for all of 2020 the following points are needed
Tower Studio -> 5,809
Standard Deluxe Studio -> 7,245
Preferred Deluxe Studio -> 8,808
Standard 1 Bedroom -> 15,019
Preferred 1 Bedroom -> 18,486
Standard 2 Bedroom -> 19,333
Preferred 2 Bedroom -> 23,372
GV -> 47,947

So assigning 25% of the Studios, 1 Bedrooms, and 2 Bedrooms to Standard and 75% to preferred we get the total points to book the hotel for the year to be 6,867,809.25, pretty much on the nose. Though this did assume that Deluxe Studio, 1 Bedroom, and 2 Bedroom units will have the same amount allocated to Standard and Preferred Views.

@crvetter , thanks. Every time I feel slightly motivated to run some numbers, a small voice tells me to sit on it because comprehensive calculations will be posted here in no time!

 

[ELMC]

So I was playing around with some numbers to see which was the cheaper way stay and if you compared the following two options

1. Buy at $188/point with MF of $8.31. Assumption is MF increase 4%/year.
2. Invest the $188 and used that money to rent the points. Assumptions are investment return is 6% per year and rental rates start at $18/point and increase 2%/year.

After 15 years you run out of money. Now option 2 has more assumptions so more variables that can throw everything off.

There was a point in time when you could buy cheap DVC points, rent them out and make a fairly good return even with the end value of the contract going to $0; think of it as an annuity. Back then, one could easily look at owning DVC as an investment, but those days are long gone.

This is interesting and it got me thinking. What if you don't spend the initial seed money?

I played around with the numbers a bit using the assumptions you laid out above. Except I ran it two ways. The first is comparing annual outlay purchasing today vs. NOT spending or investing money and just renting points. This is to counter the counter to the time value of money argument in that how often do you actually invest the money you were going to spend on DVC. So I'm going to assume that I am very irresponsible and don't invest the money and instead I spend it on souvenirs. Even with that, the break even point for buying vs. renting is 20 years. So less than that and you'd be better off renting, more than that better off buying. (Assume all the usual caveats and disregarding the assigned value of owning vs. having to find a rental, not be able to control your reservation, etc.)

But you got me thinking that maybe I should be more responsible and invest the money. So I did. And each year I took the interest and spent it on point rental (so there's no compounding). Now the interest alone isn't enough to rent the points each year, so I had to pitch in some of my own money. Here's what happened...I never broke even by buying. My total outlay over the 50 years was $5,000 more, but roughly 1/3 of my outlay was interest income so my actual cash out of pocket was about $50,000 less over the entire life of the contract. And, at the end of it all, I still have my $14,100 investment because I never touched that, I just used it to generate interest every year for 50 years. So while renting points cost me $114,000 over the life of the contract, from a balance sheet perspective my net outlay over 50 years using this method was $58,000 (because $42,000 was interest income that I never would have received if I spent the money on souvenirs and I get my initial $14,000 back) vs. $109,000 purchasing and paying annual maintenance fees.

Now before anyone goes too crazy, there are a lot of assumptions in here and variations to any one of them can throw this all out of whack. There are a lot of conclusions that can be drawn from this exercise, and no doubt the numbers can be manipulated up or down to skew towards a specific point of view. But I feel safe in saying that this supports Doug's claim that the days of looking at this like an investment are gone. Buying DVC might not always be the most economical way to stay in DVC accommodations, but it offers so many non-monetary benefits to the owner that it is probably the most efficient and satisfying way to do so. And this brings us back to the position of spending money on something you enjoy for the sole reason that you derive enjoyment out of it. And that's ok. So once we shift our thinking, regardless of what the numbers say, if I am looking for DVC accommodations, I would MUCH RATHER just buy the Riviera points, pay the maintenance fees, and book my stays than I would invest a chunk of money, try to get good returns after tax, find someone to rent me points, etc. etc. etc.

 

[MickeyMinnieMom]

This is interesting and it got me thinking. What if you don't spend the initial seed money?

Yup. That's the opportunity cost of capital I've mentioned several times. Pretty significant, and I suspect ignored in Disney's analysis.

 

[crvetter]

So I was playing around with some numbers to see which was the cheaper way stay and if you compared the following two options

1. Buy at $188/point with MF of $8.31. Assumption is MF increase 4%/year.
2. Invest the $188 and used that money to rent the points. Assumptions are investment return is 6% per year and rental rates start at $18/point and increase 2%/year.

After 15 years you run out of money. Now option 2 has more assumptions so more variables that can throw everything off.

There was a point in time when you could buy cheap DVC points, rent them out and make a fairly good return even with the end value of the contract going to $0; think of it as an annuity. Back then, one could easily look at owning DVC as an investment, but those days are long gone.

So doing something similar where I assumed renting points vs purchasing the property. I found that the breakeven point is at 19 years now. My assumptions were

Purchasing Side
MF at 8.31 that increase 4% a year
Incentives of 4200 for purchasing 200 points
Investing Savings that Owning has year over year from Renting (only fair to count the savings investment here if it is counted on the renting side)

Renting Side
Renting at 18 a point that increases 3% a year
Initial Outlay is invested at 5% a year and an even X is withdrawn a year, essentially treating my investment as an annuity

I don't do my analysis ever to renting because renting is something I wouldn't do personally if I didn't own because it is far too restrictive for me. So I've always relied on cash rates but that would just lower the breakeven year.

Yup. That's the opportunity cost of capital I've mentioned several times. Pretty significant, and I suspect ignored in Disney's analysis.

Correct that is true. However, you then should be considering investing the yearly difference in Renting minus that of owning; it wouldn't be fair to consider it on one side and not the other. Disney does consider the investment costs on both sides and it is very regimented on how they do their calculation which is controlled by the state. So in my example above the 1st year renting would cost me 3,600 but owning only costs me 1,662 (MF) so I can invest that ~2,000 and do the same thing year after year. So on the rental side you have 33,400 earning interest and on the Owning side I'm able to invest my yearly savings. Doing the analysis this way, not the annuity way I suggested above, you do breakeven still and it occurs more quickly at 12 years. The reason it occurs more quickly than above is simply year after year on the ownership side I can invest more cash because the renter isn't withdrawing anything off the capital, which is just earning money. Really the inflation rates are just working against the non-owner here.

Essentially no matter what analysis you do you should be considering the owner is able to invest the difference between renting points vs owning the points. Basically the yearly outflows from your salary should be equal to do a proper analysis.

 

[TexasChick123]

Thanks for the analysis @crvetter

 

[MickeyMinnieMom]

Correct that is true. However, you then should be considering investing the yearly difference in Renting minus that of owning; it wouldn't be fair to consider it on one side and not the other. Disney does consider the investment costs on both sides and it is very regimented on how they do their calculation which is controlled by the state. So in my example above the 1st year renting would cost me 3,600 but owning only costs me 1,662 (MF) so I can invest that ~2,000 and do the same thing year after year. So on the rental side you have 33,400 earning interest and on the Owning side I'm able to invest my yearly savings. Doing the analysis this way, not the annuity way I suggested above, you do breakeven still and it occurs more quickly at 12 years. The reason it occurs more quickly than above is simply year after year on the ownership side I can invest more cash because the renter isn't withdrawing anything off the capital, which is just earning money. Really the inflation rates are just working against the non-owner here.

Essentially no matter what analysis you do you should be considering the owner is able to invest the difference between renting points vs owning the points. Basically the yearly outflows from your salary should be equal to do a proper analysis.

Yes. With any reasonable assumptions (or at least what I think are reasonable!), OCC of the initial outlay far outweighs the OCC of annual savings between point rental or rack and owning in an NPV analysis.

I'm hard pressed to come up with anything better than 15years, personally, tweaking various assumptions.

 

[crvetter]

Yes. With any reasonable assumptions (or at least what I think are reasonable!), OCC of the initial outlay far outweighs the OCC of annual savings between point rental or rack and owning in an NPV analysis.

I'm hard pressed to come up with anything better than 15years, personally, tweaking various assumptions.

I think 12 vs 15 is likely fairly close without seeing any of each other’s exact calculations. But I think we could say somewhere between 12-15 years is the break even which is the number I’ve seen in a few other spots.

As far as our differences I think it is fair to exist because everyone has different risk tolerances. Also I should say while you have a higher interest income on the renting side you will have more excess cash flow on the owning side so while Interest income is lower you do gain advantage of the excess cash that can be invested.

Also are discounting cash flows at what rate? Investment rate?

 

[MickeyMinnieMom]

I think 12 vs 15 is likely fairly close without seeing any of each other’s exact calculations. But I think we could say somewhere between 12-15 years is the break even which is the number I’ve seen in a few other spots.

As far as our differences I think it is fair to exist because everyone has different risk tolerances. Also I should say while you have a higher interest income on the renting side you will have more excess cash flow on the owning side so while Interest income is lower you do gain advantage of the excess cash that can be invested.

Also are discounting cash flows at what rate? Investment rate?

DCF at an avg inflation figure -- I think I used 2.5%. If you try to get as real as possible, investment rate depends on how you'd actually expect to invest your funds otherwise. And there's far more uncertainty with nailing that variable down. But I played around with different ranges for these rates, as well as growth rates for rack and dues/fees. I still think my best is in that 12-15yr territory. Agreed that this seems to be the range many estimates are coming in -- except Disney's, no?

I just know that if I set all assumptions the same and look at my past 3 DVC purchases, my break-evens were 7-8yrs each. This is a "worse deal" for us and one we won't bite on -- though I was considering it 1) before pricing details released, 2) before I heard the gondolas may very well shut down for lightning in the area. Even if I decided 12-15yrs was good enough, I would NEVER buy without first seeing how Disney chooses to operate the gondolas in practice... and how much the transportation gets shared btwn DRR and CBR (wrt possible crowding at DRR station etc.).

 

[crvetter]

DCF at an avg inflation figure -- I think I used 2.5%. If you try to get as real as possible, investment rate depends on how you'd actually expect to invest your funds otherwise. And there's far more uncertainty with nailing that variable down. But I played around with different ranges for these rates, as well as growth rates for rack and dues/fees. I still think my best is in that 12-15yr territory. Agreed that this seems to be the range many estimates are coming in -- except Disney's, no?

I just know that if I set all assumptions the same and look at my past 3 DVC purchases, my break-evens were 7-8yrs each. This is a "worse deal" for us and one we won't bite on -- though I was considering it 1) before pricing details released, 2) before I heard the gondolas may very well shut down for lightning in the area. Even if I decided 12-15yrs was good enough, I would NEVER buy without first seeing how Disney chooses to operate the gondolas in practice... and how much the transportation gets shared btwn DRR and CBR (wrt possible crowding at DRR station etc.).

I think we are in agreement on all the points for our analysis. How we differ from Disney, we are using rental of points they use rack rates on equivalent nights, which I did at the request of those on here (for my personal analysis I did rack rates discounted 15-20% which has savings occurring sooner, since I wouldn't rent points too restrictive and uncertain for me). They assume inflation on the rental at 3.9% (which I'm guessing is the real inflation of rooms on property for them to be allowed to use that) and 4.5% in MF inflation. They are currently advertising savings occurring within 6-12 years, which is what I find if I use their assumptions above, though it doesn't assume any discounts, which us savvy shoppers know never to pay.

I still maintain Rental Rates for DVC points are far too low in the market and aren't increasing enough, they should be heavily correlated with the price increases for the moderate resorts at Disney, at the very minimum. I'm glad too see the average charged out to those looking to rent hit $18 this year and hopefully next year we see another $1 increase. Also I am surprised more of a variation doesn't exist for DVC resorts, for instance VGC should likely be the most expensive to rent with OKW/SSR on the bottom end with the other resorts falling down the middle, but the Rental Websites are currently being allowed to set the market (but since there is always more wanting to rent than willing to rent out their points that means the price is too low).

 

[KAT4DISNEY]

I just got off the phone with my guide. In over ten years of working for Disney this was his best week of sales ever. I think there is a lot of interest out there for Riviera. A price increase on April 15th wouldn't surprise me at all.

The timeshare sales person told you it was their best week ever? Would they really say anything else?

 

[Bruin_mouse]

The timeshare sales person told you it was their best week ever? Would they really say anything else?

I don’t make it a practice to question someone’s integrity without cause. He’s always been above board with me.

 

[Bing Showei]

I don’t make it a practice to question someone’s integrity without cause. He’s always been above board with me.

Their sole purpose at their place of employment is to get you to part with your money. As with any relationship of that nature, questioning information provided is not questioning integrity.

And brace yourself... not every guide is above the board. My original guide was a used car salesman with a Mickey badge.