What makes DVC worth investing in?

[kboo]

This is very typical and part of the genius of Disney with DVC. A very large number of Members end up spending more after buying DVC. They go more often, stay longer, stay in larger rooms, try more expensive resorts than their home, treat friends and family, etc. It's a rare buyer that keeps to the same travel pattern after buying than they originally planned /used to analyze the purchase.

I've spent so much MORE money on WDW trips since buying DVC than I otherwise would have.

 

[dvcsince93]

When we bought it 26 years ago I thought wow we can save money at WDW and it can't be another ripoff timeshare 'cause Disney has much more to lose than the timeshare companies do. While the second has proven true, DVC allows you to find more creative ways to spend money than just hotel rooms.

That said, I would not trade it for anything. It allowed us to travel with family at the holidays (which I found is much more pleasant on neutral turf like Disney) and with friends to Food and Wine. I got to watch my parents and my in-laws happily stand in long lines in the Magic Kingdom when my kids and their cousins were little. I got to do tequilla shots in Mexico with the kids when they grew up. And as corny as the "welcome home" line can be, every time that we drive into OKW, its very familiar and brings back 25 years of memories while making new ones.

I'm sure it ain't the only way but it has been a good one for us.

 

[TheGecko]

I sold my DVC late last year for about a 30% gain from where I purchased it at. This worked out well before the new restrictions came out, but is probably not repeatable in the future.

Overall I liked the product and had a ton of fun on the vacations, but ultimately I sold for the following reasons:

1.) Member Fees are increasing at a much higher rate than inflation. I can only imagine what they are going to be at 10 years from now. You have no control over these fees.
2.) Ticket Prices are increasing at a much high rate than inflation. I tracked back tickets over the past 5 years and the trend is disturbing. Disney tickets are becoming a true luxury item.
3.) Kids grow up. As my kids got older they were getting tired of going to Disney. They still have fun, but they started asking when can we do something else. The new attractions are going to be nice though and will get us to go back.
4.) There are a lot of other awesome vacation destinations including national parks which we love to visit and not as commercialized as the Disney experience.

We will be back to Disney (probably next year for Star Wars), but I am going to roll with cash reservations going forward. Gives me more control of my expenditures and keeps the mouse out of my pocket on the annual member fees.

 

[CanadaDisney05]

If you look through the purchasing forum here you will see how many people value their DVC. Some people will take their financial evaluation further with looking at what that same money would do if put in investments vs put aside for vacations. I prefer to take a simpler approach and realize that i will take vacations and that money will never make it into an investment.

I've responded to the same thing many times on the boards, but I always feel it is necessary to stress this point to potential buyers.

Purchasing DVC is made up of two things. There is the upfront cost, and the ongoing costs. The upfront cost is a lot larger than any vacation you would be taking in that first year. So the decision doesn't have to be vacation vs invest. You can do both! Take that upfront money, and invest it. Then only pull out what you need to pay for your accommodations! Your still getting just as many vacations as you would with DVC, however now the money is not locked in with an ongoing liability.

Fwiw, the "investment" doesn't mean you have to research and do major financial analysis of different companies balance sheets and buy their stocks. It can be as simple as putting they money into an interest bearing account, or a simple mutual fund/ETF.

 

[kniquy]

Take that upfront money, and invest it. Then only pull out what you need to pay for your accommodations! Your still getting just as many vacations as you would with DVC, however now the money is not locked in with an ongoing liability.

I don't see how this tactic would work. I bought an AK contract for $9600, I banked and borrowed so that we could take my in laws and stay in a couple studios at Poly and a 2BR at AK. The cost of those rooms had i gone through Disney would have been over $8000, even through a rental site would have been close to $6000. Then later in 2018 we had 50 remaining points so we spent 4 nights at AK in a studio - Disney cost would have been ~$1500.

So you are suggesting that if I put that $9600 in an investment it will grow significantly enough to cover those types of vacations? I don't see how putting $9600 in an investment in 2016 - would have grown significantly enough to fund our trips in 2018. And after dipping into it to pay for future vacations, could it really continue to grow enough for us to vacation off of that money? Even with adding in MF which could be yearly additions to the investment fund -- I don't see how we could vacation off of the earnings. Are there really investments out there with substantial growth potential and minimal risk?

 

[CanadaDisney05]

So you are suggesting that if I put that $9600 in an investment it will grow significantly enough to cover that those types of vacations?

That would depend on the rate of return of the investment. But realistically, no. Unless you are investing in something very high risk, you would not likely get a high enough rate of return where the investment strategy would make sense.

With what I believe are reasonable rates of return, DVC actually does come out on top of the investment strategy if you were to continually stay at deluxe resorts. It's actually not that close. If you were to stay at moderates, it's pretty close. If you are going value, the investment strategy comes out way ahead. The one thing that the investment strategy does offer is flexibility though. You can actually mix up your trips (one time do a deluxe, other times do values), or go to other places, or simply have access to cash in case another need comes up.

The real reason I brought that up is that the argument for DVC that I see repeated here many times is that "sure, you can invest that money and come out with a big chunk of change at the end, but then you don't get all of those memories". I'm simply clarifying that the "Investment Strategy" is not a fundamental change to the end goal (taking many WDW vacations for the least possible price), it is simply a change in strategy of how to attain that same goal.

 

[crisi]

If your goal is to take many WDW vacations for the least possible price, there is a Motel 6 in Kissimmee and a timeshare that for a half day of your time will give you park tickets. The truth is that DVC is a luxury purchase that is used to make a luxury purchase (Disney vacations) more palatable. The question isn't "would you have been able to get rooms for your inlaws at the Poly" but really "would you even pay for your inlaws vacation without DVC?" DVC makes picking up the tab for the in laws possible for many of us - but it doesn't come without a cost. It makes staying at "Deluxe" resorts possible - or on site possible - but at a cost. The question is two fold - does DVC provide enough value to you to justify the costs?" And "can you afford it?"

 

[RaymOOOnd]

I think people buy DVC for the emotional sense that they own a piece of something special, and then they perform all types of mental gymnastics to justify it financially -- when, outside of these boards, telling any other person I know that I've spent north of 30k on a pre-paid hotel room for 50 years + dues is met with an awkward mix of fascination and I think pity (especially investment banker friends who are attuned to the sequelae of dumping that money into an index fund for 20 years instead... Let alone for 50 years).

I'll try to pre-empt the responses: The argument that one route is a valuable experience and the other route is just more money is bogus, because more money buys better vacations (including those at Disney).

To be clear, I'm speaking for myself and can only guess that a few others may feel the same. We've lately considered a purchase at BCV, despite already owning more points than our vacation time each year comfortably allows... And for me it's honestly all for the feeling of "having an in" with a certain place to which we're grasping at having some formal connection. Totally mental. We usually choose 1bdrs and could in theory stay at BCV any time but for the Fall and December with our AKV or BLT points, but that wouldn't give us the feeling of being "owners" at an Epcot resort... The one thing we're still missing from our roster in an imaginary way. Just paying cash for a room at this point if/when we ever truly wish to stay there, depending on how we personally price the 11month wait, the stress and time involved in all of the contract acquisition process with ROFR, rising dues, new restrictions, etc etc into the equation, would probably result in a better outcome at the end of the day. Maybe not quite on paper, but subjectively, with time and convenience and sanity as your measures of value.

It's a sign of the pathology that I recognize all of this and am still considering buying again.

 

[CanadaDisney05]

I think people buy DVC for the emotional sense that they own a piece of something special, and then they perform all types of mental gymnastics to justify it financially -- when, outside of these boards, telling any other person I know that I've spent north of 30k on a pre-paid hotel room for 50 years + dues is met with an awkward mix of fascination and I think pity (especially investment banker friends who are attuned to the sequelae of dumping that money into an index fund for 20 years instead... Let alone for 50 years).

I'll try to pre-empt the responses: The argument that one route is a valuable experience and the other route is just more money is bogus, because more money buys better vacations (including those at Disney).

Kind of going against my previous posts because I have keep urging prospective buyers to truly consider the index investing approach for exactly the same reasons.

However, with reasonable assumptions of rates of returns, and inflation, I believe the math works heavily in favour of DVC IF you really do plan on staying at deluxe resorts every 1 or 2 years. The cash cost (including renting points) is just so expensive.

I do believe that most DVC owners are not those who actually would stay at deluxe resorts on any sort of regular basis though but get swept up in simple math that doesn't consider opportunity cost.

I'll be honest, I'm a prospective buyer and have never, and will never stay in a deluxe resort without DVC. My thought process is that I know DVC will cost me more money, lock up those funds, and give me less flexibility. I'm struggling with the thought process of how much value does staying in the deluxe resorts really offer me

 

[mgarbowski]

I wrote this last fall for another forum. I haven't updated it but very little has changed:
I've been keeping track of our DVC costs since we bought in 2011. A few years in, I started recording some assumed room costs/savings by checking a points rental calculator whenever I book our stays. With a spreadsheet, and a few assumptions, it's now easy to track and project when we hit our break even point. I thought my findings might be of interest so I'm going to post a complete summary.

Upfront Costs
We bought 200 points at BLT direct in 2011. The official price was $130/pt but there was a $15 per point incentive that lowered it to $115 for a buy-in of $23,000. We put the entire amount on a Disney Visa, in 3 separate charges over 2 weeks. I paid the Visa charges in full immediately when due so paid no interest. Closing costs were $301. I'm also 98% certain we also received a $500 Visa gift card for a total upfront cost of $22,801.

Dues
To date, we have paid $6,988 in dues. Assume an average increase for 2019 and it will soon be $8,196 [update: it was close enough]. Add that to the initial outlay and the total nominal cost, ignoring the time-value of money, is $30,996.

Room Benefits
I've been using the rental cost calculator here from one of the points rental sites to estimate what I would have paid to stay in the same rooms without DVC membership. It's a compromise figure. I could rent points cheaper without a broker. I could also pay hotel rates plus tax to Disney for much more. In truth I would never have stayed in these rooms annually without DVC, and I figure this somewhat midrange figure is fair enough for my exercise. I had to guesstimate the imputed value of 2-3 early stays because I didn't start checking these point rental figures from the beginning.

With those disclaimers, over the years we have stayed 35 nights (a mix of studios and 1-BRs) with a total imputed cost/value of $19,659. Add in next year's stay [now this year] at Bay Lake (1BR, Lake View) and the totals are 41 nights for $23,909. The average nightly rate is $583 and ranges from a low of $248 per night for 2 nights at a studio at OKW on July 4 weekend in 2017, to $792 per night for a one-bedroom at Boardwalk overlooking Crescent Lake during Easter Week in 2015.

Simple Net
Ignoring time values, we will still be $7,087 away from recouping our initial outlay plus annual dues with room benefits in 2019 after 8 years. But we probably will turn positive in 2 more years after that in 2021.

Accounting for Lost Interest/Earnings
There are lots and lots of theories how to do this. Here is what I did. I chose an interest rate of 3%. It's another compromise between the 0-1% you would have gotten in a bank the last decade, and the 5-8% you reasonably hope to get on a standard mix of investments. I started with my initial 2011 outlay, and carry that into 2012 plus the 3% I would have earned had I not spent it on DVC. To that I add the 2011 dues, and then subtract the imputed value of our 2012 stay. That becomes the new "principal," to which I apply 3%, add 2012 dues, subtract the value of the 2013 stay, and so on. In effect, I treat the DVC costs as a sort of loan that I made, for which I am repaid with room stays. The interest goes down every year as the "principal" amount decreases.
The result of this is that the 2019 deficit/principal will be $10,143, so the assumed interest adds about $3,000 compared to the static nominal dollar model. Projecting out we will turn positive in 2023, just 2 years more than the static model that ignores time value. That is 12 years after the initial purchase.

Additional Notes
My semi-confident estimate, based on a review of current contract listings and sales, is that I could sell this contract now for enough to recoup our initial costs, plus some but certainly not most of our dues or imputed lost interest. It would mean that all our stays to date cost an average room rate of $200-250 a night out of pocket. That's a very rough estimate, but good enough for me and one I find satisfying. [update: I have not looked at this since last October]

We have mostly made good use of our points. I think we twice let banked points expire, and one of those was a very small amount. But the other was the first year, when we used a relative's points to book half our 2012 vacation (irrelevant long story) so we did not really start getting a good return on our 2011 purchase until 2013. But even in the years we did not waste any points, we also could have been a bit more aggressive using them. I've started using more, and that will accelerate the value recovery.

My actual dues paid largely track the published dues rate multiplied by our 200 points, excpt in 2012 we seem to have been undercharged by about $100. I don't know why, and cannot find a mistake in my math or my records. But at least it was in my favor. And I presume there is a good reason for it that I am just missing. I very much doubt Disney made a mistake like that in my favor. I take my dues paid direct from my online DVC membership. You can go back and check your entire history.

These figures ignore dining discounts, gift store discounts, and annual pass discounts (and anything else I forgot). I've no reliable way to measure how much we have saved, (nor to account for the extent to which it caused us to spend more). Nor does this account for the fact that I paid the entire purchase price, and most annual dues, either with cash back credit cards or gift cards bought at a discount. All of these would lower or further offset our costs, including imputed lost interest, and make this financial analysis more favorable.

Finally, the needless yet necessary disclaimer that your costs are not my costs, your stays are not my stays, my assumptions can be wrong, my math can be wrong (though I doubt that), and I'm not a financial professional and I'm not making predictions or giving advice about you, to you or for you.

 

[mgarbowski]

So my previous post covered the numbers. Here the less calculated reason why it made sense for my family:
We bought because we found ourselves starting to go yearly - often as a guest of my wife's cousin who owned DVC. Eight years later I believe buying made sense and have no regrets.

1. We liked the idea of going more, and regularly, and are glad we have.
2. It's nice to be able to stay at the best resorts for what eventually works out to be more like moderate prices.
3. We have twice been able to take advantage of AP discounts which both saved us money and cost us more money by adding in an extra "not-really-free" trip. Both sides of those seemingly conflicting aspects are a positive good in my mind.
4. Prepaying hotel costs gave us the satisfaction and peace of mind that others get from the Dining Plan, regardless of the math. Oddly, the DP holds no appeal for me or my wife, for exactly the opposite reasons. In the DP, the math never adds up for us, and I get no satisfaction from prepaying for meals.
5. Knowing that this vacation expense is attached to an asset is also a good thing mentally. It is a depreciating asset to be sure, but it is worth something. Eventually it will be worth very little but by then we should have received much, much more in hotel stay value.
6. For all the time I spend planning Disney vacations, it's nice not to spend any mental energy deciding where we should vacation next year.
7. We will hit the investment break even point at roughly the same time we become empty nesters and are close to retirement. And it's clear my wife and I enjoy WDW enough to go without kids pending the potential next generation. And it will be very nice at that point -- with jobs behind us and no kids -- to have the hotel stays prepaid.

A couple of the above points are universal, or could be with minor adjustments. Others are personal and may or may not transfer to you and yours. I always tell anyone who asks that the DVC is not for most people, but if you want to go to WDW on a regular basis, and if it feels like a good fit for you, and you can afford the upfront costs without financing, then it is likely the right decision. We thought very directly about the "feels like a good fit for us" issue for probably six months to a year before buying, and had been considering more vaguely for at least a year before that. I would do it again knowing what I know.

 

[MNDisneyMommy]

Right now our kids are 4 and 7. We bought DVC in 2015 right after the youngest was born. We own 160 pts at BLT. Ignoring opportunity cost, we've paid in $21,164.93 (points + closing + mtce fees). The website rates including any discounts for the actual rooms totals $20,858. For these first few trips, we would have stayed in exactly those rooms, so we think that's a good number for us.

Our logic was - we knew we were going to go nearly yearly while our kids were in the early years, AND we knew we were going to want to stay at the Contemporary/Bay Lake since the ability to walk to MK is something we rate very highly. Also, our first born for various reasons isn't a great room-sharer. Even when we travel other places, we always stay in a two-room suite type configuration, so the 1 BR was where we planned to be. When we priced out our first trip, we saw how ridiculous the rack rates were for the room we wanted at the place we wanted, and that's where the DVC math started. (If I am going to pay $8k for one trip, and I know I am going to do at least 2-3 more exactly like that, $16k for points suddenly doesn't seem crazy!)

Since we would have paid for 1 bedroom suites at BLT cash for these past few trips, that would have depleted the savings account quite dramatically. Even if invested, taking $20k and removing $8k in year 1, there is no way even nice stock market returns (which have down risk!) would get us to returns that support frequent Disney trips. DVC offered us a way to stay exactly where we wanted, and get a benefit. The benefit is - we will have points we can still use at the end of our kids younger years. Even if when the oldest hits middle school both kids want to stop going, we can rent points for a few years, and then husband and I can go on our own. We adore Disney all on our own. The idea that we get to take our kids while they are young and stay in exactly what we want...and THEN we get years and years of trips after at a discount...we're pretty happy with that! Those no-kid trips later in life would have probably been back in moderate hotel rooms with maybe a Contemporary splurge now and then like we did before kids. Now we know we can stay in our favorite resort every time, and there might be other options too.

Plus - I completely get that prices fluctuate wildly, but the idea that I could sell those points today and ignoring opportunity costs come close to breaking even...well, it kinda feels like cheating. We did not buy expecting that, so it's weird to think about.

This is obviously a lot of very specific-to-us stuff. But, I thought it might help. Our vacations so far have been extremely pleasant - the kids stay on the sleeper sofa, we get to rest in our own room, after fireworks we're back and they're in bed 15 minutes later, in the morning we're a 15 minute walk to the heart of MK...when they just want a hot dog and oranges, or cereal and milk, we have a kitchen where they can eat. So yes - the memories have been absolutely priceless to boot.

 

[CanadaDisney05]

I wrote this last fall for another forum. I haven't updated it but very little has changed:
I've been keeping track of our DVC costs since we bought in 2011. A few years in, I started recording some assumed room costs/savings by checking a points rental calculator whenever I book our stays. With a spreadsheet, and a few assumptions, it's now easy to track and project when we hit our break even point. I thought my findings might be of interest so I'm going to post a complete summary.

Upfront Costs
We bought 200 points at BLT direct in 2011. The official price was $130/pt but there was a $15 per point incentive that lowered it to $115 for a buy-in of $23,000. We put the entire amount on a Disney Visa, in 3 separate charges over 2 weeks. I paid the Visa charges in full immediately when due so paid no interest. Closing costs were $301. I'm also 98% certain we also received a $500 Visa gift card for a total upfront cost of $22,801.

Dues
To date, we have paid $6,988 in dues. Assume an average increase for 2019 and it will soon be $8,196 [update: it was close enough]. Add that to the initial outlay and the total nominal cost, ignoring the time-value of money, is $30,996.

Room Benefits
I've been using the rental cost calculator here from one of the points rental sites to estimate what I would have paid to stay in the same rooms without DVC membership. It's a compromise figure. I could rent points cheaper without a broker. I could also pay hotel rates plus tax to Disney for much more. In truth I would never have stayed in these rooms annually without DVC, and I figure this somewhat midrange figure is fair enough for my exercise. I had to guesstimate the imputed value of 2-3 early stays because I didn't start checking these point rental figures from the beginning.

With those disclaimers, over the years we have stayed 35 nights (a mix of studios and 1-BRs) with a total imputed cost/value of $19,659. Add in next year's stay [now this year] at Bay Lake (1BR, Lake View) and the totals are 41 nights for $23,909. The average nightly rate is $583 and ranges from a low of $248 per night for 2 nights at a studio at OKW on July 4 weekend in 2017, to $792 per night for a one-bedroom at Boardwalk overlooking Crescent Lake during Easter Week in 2015.

Simple Net
Ignoring time values, we will still be $7,087 away from recouping our initial outlay plus annual dues with room benefits in 2019 after 8 years. But we probably will turn positive in 2 more years after that in 2021.

Accounting for Lost Interest/Earnings
There are lots and lots of theories how to do this. Here is what I did. I chose an interest rate of 3%. It's another compromise between the 0-1% you would have gotten in a bank the last decade, and the 5-8% you reasonably hope to get on a standard mix of investments. I started with my initial 2011 outlay, and carry that into 2012 plus the 3% I would have earned had I not spent it on DVC. To that I add the 2011 dues, and then subtract the imputed value of our 2012 stay. That becomes the new "principal," to which I apply 3%, add 2012 dues, subtract the value of the 2013 stay, and so on. In effect, I treat the DVC costs as a sort of loan that I made, for which I am repaid with room stays. The interest goes down every year as the "principal" amount decreases.
The result of this is that the 2019 deficit/principal will be $10,143, so the assumed interest adds about $3,000 compared to the static nominal dollar model. Projecting out we will turn positive in 2023, just 2 years more than the static model that ignores time value. That is 12 years after the initial purchase.

Additional Notes
My semi-confident estimate, based on a review of current contract listings and sales, is that I could sell this contract now for enough to recoup our initial costs, plus some but certainly not most of our dues or imputed lost interest. It would mean that all our stays to date cost an average room rate of $200-250 a night out of pocket. That's a very rough estimate, but good enough for me and one I find satisfying. [update: I have not looked at this since last October]

We have mostly made good use of our points. I think we twice let banked points expire, and one of those was a very small amount. But the other was the first year, when we used a relative's points to book half our 2012 vacation (irrelevant long story) so we did not really start getting a good return on our 2011 purchase until 2013. But even in the years we did not waste any points, we also could have been a bit more aggressive using them. I've started using more, and that will accelerate the value recovery.

My actual dues paid largely track the published dues rate multiplied by our 200 points, excpt in 2012 we seem to have been undercharged by about $100. I don't know why, and cannot find a mistake in my math or my records. But at least it was in my favor. And I presume there is a good reason for it that I am just missing. I very much doubt Disney made a mistake like that in my favor. I take my dues paid direct from my online DVC membership. You can go back and check your entire history.

These figures ignore dining discounts, gift store discounts, and annual pass discounts (and anything else I forgot). I've no reliable way to measure how much we have saved, (nor to account for the extent to which it caused us to spend more). Nor does this account for the fact that I paid the entire purchase price, and most annual dues, either with cash back credit cards or gift cards bought at a discount. All of these would lower or further offset our costs, including imputed lost interest, and make this financial analysis more favorable.

Finally, the needless yet necessary disclaimer that your costs are not my costs, your stays are not my stays, my assumptions can be wrong, my math can be wrong (though I doubt that), and I'm not a financial professional and I'm not making predictions or giving advice about you, to you or for you.

Thanks for this detailed analysis. It lines up with most of my predictive calculations. In general, DVC definitely saves money over the long term if you want to stay deluxe, pretty similar to moderate, and very poor against value. It also has the non-quantitative problem of being non-liquid and a reduction of flexibility.

 

[gscott8075]

I sold my DVC late last year for about a 30% gain from where I purchased it at. This worked out well before the new restrictions came out, but is probably not repeatable in the future.

Overall I liked the product and had a ton of fun on the vacations, but ultimately I sold for the following reasons:

1.) Member Fees are increasing at a much higher rate than inflation. I can only imagine what they are going to be at 10 years from now. You have no control over these fees.
2.) Ticket Prices are increasing at a much high rate than inflation. I tracked back tickets over the past 5 years and the trend is disturbing. Disney tickets are becoming a true luxury item.
3.) Kids grow up. As my kids got older they were getting tired of going to Disney. They still have fun, but they started asking when can we do something else. The new attractions are going to be nice though and will get us to go back.
4.) There are a lot of other awesome vacation destinations including national parks which we love to visit and not as commercialized as the Disney experience.

We will be back to Disney (probably next year for Star Wars), but I am going to roll with cash reservations going forward. Gives me more control of my expenditures and keeps the mouse out of my pocket on the annual member fees.

I echo the sentiments above. We bought OKW in 1998, bought HHI in 2001, sold OKW in 2002 and sold HHI last month. I think 3 and 4 are the most relevant lessons we learned. And, at today's point values, I do not see the opportunity described by the OP to make a profit off the sale. We owned our 18 years at HHI and broke even. Keep in mind, there were almost 40 years when we bought and only 22 left when we sold. We were very fortunate to get our money back.

There is an emotional attachment to this purchase for sure - you feel like you are part of something wonderful. But, the reality is, this is a business and Disney, like all companies, exist to make money. They have really turned the screws by dramatically increasing MF's and the cost of points far in excess of the inflation rate. HHI is 8.56 pp up from 3.50 when we started in 2001. That suggests you are looking at $20 or even $25 pp in the future. That's a big number.

 

[Douglas Dubh]

We looked at DVC a couple of times before we bought in 2009. At first, I was skeptical we'd save money, and figured the two bedroom units were too big for a couple with a son and a daughter and the one bedroom or studios were too small. But then we discovered my wife and children are gluten intolerant, so having a kitchen to cook and keep food in became pretty important. And DVC released BLT which had three beds and two baths in a 1 bedroom unit. So we bought there, and later added on at the Grand Californian for our yearly trips to DLR, and again at AKL.

 

[RaymOOOnd]

I admire the thorough financial analyses, seriously. That said, I don't believe it's fair to assume a 3% return per year on investments for people who have some idea of what they're doing -- by which I mean dollar-cost-averaging into a fund made up 100% of stocks, without trying to time the market, stock picking, or doing anything stupid. I can't see how it's even worth doing further analysis once you consider that the average return in the market is 7% (which may not hold true for years at a time but hey - think of it as a sale). Investing 30,000 now and looking at it in 20 years at historical returns would leave you with 116,000, for example. If we're somehow comparing this to buying a liability for the same price and then paying yearly ever-increasing dues on top of it... I think there's a strong emotional component twisting our numbers and opinions.

 

[crisi]

I admire the thorough financial analyses, seriously. That said, I don't believe it's fair to assume a 3% return per year on investments for people who have some idea of what they're doing -- by which I mean dollar-cost-averaging into a fund made up 100% of stocks, without trying to time the market, stock picking, or doing anything stupid. I can't see how it's even worth doing further analysis once you consider that the average return in the market is 7% (which may not hold true for years at a time but hey - think of it as a sale). Investing 30,000 now and looking at it in 20 years at historical returns would leave you with 116,000, for example. If we're somehow comparing this to buying a liability for the same price and then paying yearly ever-increasing dues on top of it... I think there's a strong emotional component twisting our numbers and opinions.

Over the years I've come to really dislike the financial analysis done on this site. I'm an accountant, I can do a financial analysis. I am also a successful investor, I have some idea about markets.

Here is what I think. If you understand finance and money well enough to follow the analysis, go for it. The analysis are sort of fun to do - I've participated in my share over the years. Some of them are quite good (and some of them really are not). But recognize that they are harmful. Over the years I've seen plenty of people who really don't understand these analysis use them to justify purchases that they shouldn't make. 2008/2009 was the turning point for me....people were losing jobs and homes - and DVC - and often if you looked back, it was the people who made a justification over an analysis like the ones being done - an analysis that they didn't understand or had been baked to show the best possible outcome.

There are two questions that need to be answered. Is DVC a good fit for me? With all of the banking and borrowing and reservation rules and hassles, with the differences between a hotel room and a timeshare. With my families long term projected travel patterns.......if the answer to question 1 is yes, the next question is "Can I afford it?" If resale value the day after I bought fell by 50%, if my life went through the little ups and downs to be expected in life (who HASN'T gotten laid off from a job ever in the 20th or 21st century? Who hasn't had a medical issue that ended up setting them back in either income or medical expenses or both?), when I'm looking at colleges for kids or daycare expenses or retirement costs, could I afford to have this money tied up in DVC? If the answer to that is yes, go for it. Otherwise, it doesn't really matter how much you cook the numbers to make it work (and I have seen some truly cooked, grilled, baked and then fried for good measure numbers - things like basing salvage value off someone who got a fire sale contract in 2009 and then sold it in 2018, and running it against a comparison of someone who bought stock in 1999 and sold it in 2009 - when its just as valid to look at someone who bought DVC in late 2007 and then was forced to sell in early 2009 and lost their shirt against someone who invested in stock in 2001, got nervous in Summer 2008 after Bear Sterns and AIG and reinvested in 2009 - neither are honest analysis), you are taking a lot of risk.

 

[mgarbowski]

I admire the thorough financial analyses, seriously. That said, I don't believe it's fair to assume a 3% return per year on investments for people who have some idea of what they're doing -- by which I mean dollar-cost-averaging into a fund made up 100% of stocks, without trying to time the market, stock picking, or doing anything stupid. I can't see how it's even worth doing further analysis once you consider that the average return in the market is 7% (which may not hold true for years at a time but hey - think of it as a sale). Investing 30,000 now and looking at it in 20 years at historical returns would leave you with 116,000, for example. If we're somehow comparing this to buying a liability for the same price and then paying yearly ever-increasing dues on top of it... I think there's a strong emotional component twisting our numbers and opinions.

I wrote that up not to tell people a 3% rate of return is the right one. The main point is to help people organize their own thoughts about the way to calculate the numbers and I think mine holds up. As for the ROR, even though it's not specifically tied to anything, I put a lot of thought into the 3% figure, which doesn't mean it's right but I did not twist my numbers to justify any decision.
My reasons for choosing a rate between a basic savings interest return and full stock return include:

• My opinion is that there are almost no circumstances in which one should be 100% invested in stocks. Mostly, yes, but not 100%. And that reduces your return, hopefully compensated by some added stability. Plus I know a lot of people have little tolerance for risk and would want to keep a dedicated fund like this in extremely safe but low return investments. I don't think that's appropriate either. I went in the middle.
• You never know when the market will have a major down year. If it happens the year after you chose not to buy DVC and instead invested in an index fund then it can take years to catch up. People who bought DVC in 2007 before the crash have probably hit their break even (assuming they stayed employed and kept the membership) much sooner compared to a stock investment. People who bought then and lost their job probably came out terrible. Of course if the market does not have a major bear turn then that makes every major purchase look worse by comparison. People like me who bought soon after the crash last decade and near the start of a very long term bull market have a worse comparative return from their DVC purchase compared to investing. But I wasn't trying to measure my decision in hindsight but knowing what I knew and all anyone can know beforehand.
• I assume few families will be able to resist touching their vacation nest egg for other uses which destroys the investment return. Which is arguably a good thing: not buying DVC gives you more options. Maybe those families are better off because they bought _____ or did _____ and ended up foregoing some WDW vacations. But I think, if you're not very, very sure you really want to go to WDW regularly for at least 8-10 years and even more then you don't even need get to the calculations. Don't do it. Don't buy DVC. So I built my spreadsheet with that as a given.

And I'm fine if the theoretical perfect proper rate is higher and pushes the break even point out a few years, because it turned out my wife and I were right about our family's long term interest in WDW. My girls are in high school and college, and show no signs of aging out. We'll get there. Other kids and other families are different.

There are multiple ways to manipulate the numbers to get the result you want. If you want to justify not buying DVC then assume a high rate of return on the alternative investment fund, and that maintenance fees increase at the maximum rate every year, and assume you will manage to get all hotel rooms at a discount, whether buy renting points direct or staying at moderates or values or offsite. If you want to justify buying DVC ignore the time value of money altogether, and assume you pay undiscounted rack rate for Deluxe hotel rooms, and maybe also ignore maintenance fees. I have seen people do all of those things, some of which make no sense at all MO. I just tried not to hit the extreme on any of them. I kind of figure anyone who wants to go to the extreme on any of them probably has a result they want to justify in advance. Which is fine, but if that's the case why run numbers? You probably already know what you want to do.

Finally, as I stated in my follow up post, I do not recommend DVC for most people, and I'm not sure I would almost ever recommend buying at today's point costs, especially direct. Similarly I am not at all sure I would have my family do it today if we were all 8 years younger and otherwise in the same position today we were in back then because of the higher costs. But if you are thinking of it, and if you are as certain as one can be about your family's future vacation wants, and if you have the cash, then I think my model becomes a useful step. Build your own spreadsheet and by all means tweak it. Assume a different rate of return. Assume different maintenance fees (especially tied to your home resort). Assume there will be a year you don't go and maybe have trouble renting your points.

 

[PsycProfPlum]

I can't make any financial case to you, but I will talk about the psychological benefits. Recently Len Testa over at Touringplans provided data that showed that guest satisfaction ratings for Disney restaurants was higher for those on the dining plan than those paying out of pocket - this was true for virtually all restaurants but especially those with mixed reviews. It seems that if you are paying out of pocket for a mediocre experience, you are less forgiving of it and enjoy it less. Given that the dining plan rare truly saves money, the takeaway from that is that there is a psychological benefit from the dining plan in which the pain of paying is done upfront and removed from the experience, making it more enjoyable.

Personally, I feel the same is true of DVC. Yes, it sucks cutting a enormous check up front, but after that, for $1000/year in dues, I get several nights in extremely nice resorts that I'd likely never stay otherwise. In other words, it may not be financially rewarding, but it is very psychologically rewarding.

 

[crisi]

I can't make any financial case to you, but I will talk about the psychological benefits. Recently Len Testa over at Touringplans provided data that showed that guest satisfaction ratings for Disney restaurants was higher for those on the dining plan than those paying out of pocket - this was true for virtually all restaurants but especially those with mixed reviews. It seems that if you are paying out of pocket for a mediocre experience, you are less forgiving of it and enjoy it less. Given that the dining plan rare truly saves money, the takeaway from that is that there is a psychological benefit from the dining plan in which the pain of paying is done upfront and removed from the experience, making it more enjoyable.

Personally, I feel the same is true of DVC. Yes, it sucks cutting a enormous check up front, but after that, for $1000/year in dues, I get several nights in extremely nice resorts that I'd likely never stay otherwise. In other words, it may not be financially rewarding, but it is very psychologically rewarding.

That sounds like an excellent case for NOT buying. If you wouldn't be satisfied if you paid out of pocket, then buying into something where you are tied to ownership, where DVC can (and has) made a lot of members unhappy with policy changes - then the psychological trick of making you happy because you are not out of pocket is just that, its a psychological trick that will keep you from getting out when the getting is good, keep you happy with something that you shouldn't be happy with. If I'm paying Disney prices for a mediocre dining experiences, I want to be disappointed, because I want to change my behavior to get me an experience that is in line with what I am spending.