Larger Contract than you intended

[rojen]

Originally Posted by Jasonkat

You have $20,000 and you just feel like you HAVE to spend it? Who are you, Barack Obama?

You "could" buy 100-200 DVC points now and put the rest of the money in a separate savings account for the express purpose of buying more DVC points in the future. There is no reason to go from owning 0 points to 300 pts overnight. Buy a smaller amount and then if it works for you buy more later.

I have 2 kids age 3 and 1 and my family expects two trips per year in 1 bedrooms. We will need about 400-450 points to do this. However I just closed on a 200 point contract. I figure I'll buy half what I need now and then try out DVC for a little bit before committing so much money.

The price difference of 300 pts vs 150 points will probably be $10,000 up front and $800 annually. That's a lot of money and you are better off buying half what you need and then expanding later.

And if prices crash you will get a better deal in the future and feel happy you waited. And if prices rise you will feel like you got a good deal now and be happy you bought when you did. Either way you are a winner.

The idea was to rent the excess points until I need them. Money sitting in an account drawing .25% interest does me no good. Renting out points at least puts the money to use. I'll recoup that excess cost for a few years, pay for MF and such.

And I've stayed at three DVC properties. We'll be going 1-2 times a year. Definitely don't want to spend the money to stay at a deluxe, and the values are too small. Mods are ok, but even with a discount, paying $150 a night at POR adds up to the value of a DVC contract real fast.

[kellykaiko]

I am considering buying DVC resale as well. Does anyone have a spreadsheet or something that would help me lay out all the costs over several years? I really want to be able to see all the numbers and I just can't grasp the full picture of costs in the long run. I really want to know if it's worth it for me to buy or should I just keep renting points? We would like to go every other year... can anyone help?

[ELMC]

Originally Posted by Jasonkat

And if prices crash you will get a better deal in the future and feel happy you waited. And if prices rise you will feel like you got a good deal now and be happy you bought when you did. Either way you are a winner.

I'm pretty sure that if I held off and prices went up when I went to buy my second contract I would not feel like a winner. I'd be annoyed.

[ELMC]

Originally Posted by kellykaiko

I am considering buying DVC resale as well. Does anyone have a spreadsheet or something that would help me lay out all the costs over several years? I really want to be able to see all the numbers and I just can't grasp the full picture of costs in the long run. I really want to know if it's worth it for me to buy or should I just keep renting points? We would like to go every other year... can anyone help?

I can help you set up a spreadsheet if you'd like. For simplicity's sake we are going to ignore the cost of use of money (the potential investment of return if you were to invest your purchase price instead of spend it on DVC). I choose to do this for several reasons. First, I don't think that people account for this with other major purchases in their lives, so it's unfair to do so with a DVC purchase. Second, there is no way to accurately predict what a reasonable rate of return could be, and any year that turns in a loss would render the projections completely useless.

Anyway, column A is your total purchase price including closing costs. Column B is your maintenance fees. Column C is the total of those two components. That is your true cost of owning DVC on a year by year basis. Column D is the cost of renting a similar number of points at $X per point (you decide what that is depending on what you pay to rent). Create a spreadsheet that has a running total for columns C and D (be sure to include increases in maintenance fees at about 3%) and increases in rental prices after about 5 years (just an estimate).

Find the point where the number in column D is higher than the number in column C. That is the point where renting has become more expensive than owning. Based on this you can make inferences and decisions tailored to your specific preferences, risk tolerance, etc.

Hope this helps.

[kellykaiko]

Very helpful!! Thanks!

[Dean]

Originally Posted by ELMC

I can help you set up a spreadsheet if you'd like. For simplicity's sake we are going to ignore the cost of use of money (the potential investment of return if you were to invest your purchase price instead of spend it on DVC). I choose to do this for several reasons. First, I don't think that people account for this with other major purchases in their lives, so it's unfair to do so with a DVC purchase. Second, there is no way to accurately predict what a reasonable rate of return could be, and any year that turns in a loss would render the projections completely useless.

Anyway, column A is your total purchase price including closing costs. Column B is your maintenance fees. Column C is the total of those two components. That is your true cost of owning DVC on a year by year basis. Column D is the cost of renting a similar number of points at $X per point (you decide what that is depending on what you pay to rent). Create a spreadsheet that has a running total for columns C and D (be sure to include increases in maintenance fees at about 3%) and increases in rental prices after about 5 years (just an estimate).

Find the point where the number in column D is higher than the number in column C. That is the point where renting has become more expensive than owning. Based on this you can make inferences and decisions tailored to your specific preferences, risk tolerance, etc.

Hope this helps.

I personally would include the time value of money but then I would for any large purchase that I look at over more than a 5 year period including a car. I'd assume an increase of 8% per year on the amount that is more than 5 years out, which is about half of the upfront amount in my way of looking at it. I would assume the withdrawal for yearly trips at the cost of the trip for each year. This scenario without the time value of money will give you the best or worse case scenario depending on which side you look at assuming other reasonable variables. I personally would assume higher than a 3% maint fees, likely 4% and hope for 3.5%. I know it's more complicated but I feel it gives one a better picture of the true cost and risk of owning DVC. Obviously this assumes paying cash but I wouldn't recommend buying if one didn't. I'd also look at a ROI of 10 years which is why I said to only look at half as long term investment, not the life of the contract. IF one does finance, you've got to add in those costs and interest as well.

[G'sMaman]

Originally Posted by kellykaiko

I am considering buying DVC resale as well. Does anyone have a spreadsheet or something that would help me lay out all the costs over several years? I really want to be able to see all the numbers and I just can't grasp the full picture of costs in the long run. I really want to know if it's worth it for me to buy or should I just keep renting points? We would like to go every other year... can anyone help?

Here is a very basic calculator for estimating the long term costs:

http://www.dvcproplan.com/buy.php

[DougEMG]

So when I ran the following senario to see how long your $20,000 would last renting out points, it came to just over 12 years. By year 13, your money is all gone and it costs you an extra money to go.

My assumptions were:
(A) You start with $20,000 in savings (your purchase costs)
(B) You save what would have been your MF each year. MF start at $4.8/point (SSR) and MF increase at 3.5% each year
(C) You earn 3.5% (after tax) each year on (A) + (B)
(D) You rent 300 points each year starting at $12/point and increasing a $1/point every 5 years.
(4) Your year end balance is A + B + C - D which becomes your starting amount (A) for the next year.

Run those same numbers with BWV MF starting at $5.80/point and by year 19 your money is all gone and you have to pay extra.

Switch those number around however you like and you can see what happens. Try playing with those MF increases (Change 3.5% increase to 4.5% increase) and see what that does!

Lots of way to play with numbers...

[ELMC]

Originally Posted by Dean

I personally would include the time value of money but then I would for any large purchase that I look at over more than a 5 year period including a car. I'd assume an increase of 8% per year on the amount that is more than 5 years out, which is about half of the upfront amount in my way of looking at it. I would assume the withdrawal for yearly trips at the cost of the trip for each year. This scenario without the time value of money will give you the best or worse case scenario depending on which side you look at assuming other reasonable variables. I personally would assume higher than a 3% maint fees, likely 4% and hope for 3.5%. I know it's more complicated but I feel it gives one a better picture of the true cost and risk of owning DVC. Obviously this assumes paying cash but I wouldn't recommend buying if one didn't. I'd also look at a ROI of 10 years which is why I said to only look at half as long term investment, not the life of the contract. IF one does finance, you've got to add in those costs and interest as well.

While I agree with you in theory, human nature suggests that for many, the alternative is not saving/investing the money but instead spending it on something else. My insurance agent has told me the story before, how he's had dozens upon dozens of clients say that they would rather buy term insurance instead of whole life insurance and invest the difference. In 30 years he can count on one hand the number of clients who actually did invest the difference. But I do agree that I should have used 4% as my estimated maintenance fee increase as it includes more room for error.

[joelp]

Originally Posted by Deb & Bill

Not a good thing to even consider. By the time your three, all under four, daughters are old enough to pay DVC dues on their own, the dues will be horrible. Don't even consider buying to leave to your prodigy at this point.

Buy for yourself and your family. And go from there if you want to buy. But don't saddle your babies with future DVC dues when they haven't even started kindergarten.

While the DVC MF may be "horrible" down the road a bit, just imagine what room rack rates will be!!

Break out an Excel spreadsheet and do the math (using - say - a 3.5% inflation rate) ... it get's scary real fast ...

As a personal example, I used 2012 AKL rack rates this past summer when trying to decide if buying into DVC was "worth" it ... The AKV MF went up about 4% in 2013, but the comparable AKL rack rate went up about 10% for the same trip!

One of the main reasons we bought DVC is that it's one of the few ways (short of winning the lottery ) I figure we'll be able to afford to visit WDW and stay in a Deluxe room - and to pass that ability onto the DD ...

[joelp]

Originally Posted by rojen

The idea was to rent the excess points until I need them. Money sitting in an account drawing .25% interest does me no good. Renting out points at least puts the money to use. I'll recoup that excess cost for a few years, pay for MF and such.

And I've stayed at three DVC properties. We'll be going 1-2 times a year. Definitely don't want to spend the money to stay at a deluxe, and the values are too small. Mods are ok, but even with a discount, paying $150 a night at POR adds up to the value of a DVC contract real fast.

If you are going to WDW 1-2 times per year and staying in a 1BR, I wouldn't count on having too many "extra" points to rent out if you own 300 points ... A week in a 1BR "standard-type" view runs about 200 points (depending on time of year ...)

[Dean]

Originally Posted by ELMC

While I agree with you in theory, human nature suggests that for many, the alternative is not saving/investing the money but instead spending it on something else. My insurance agent has told me the story before, how he's had dozens upon dozens of clients say that they would rather buy term insurance instead of whole life insurance and invest the difference. In 30 years he can count on one hand the number of clients who actually did invest the difference. But I do agree that I should have used 4% as my estimated maintenance fee increase as it includes more room for error.

One bad choice does not make another a good one. In many ways I look at this like those who use the W-4 withholding as a forced savings plan, bad idea. While I understand the psychology of your thoughts, I'm reminded that people who can't handle money tend to get in trouble thus anything they do to increase their risk and commitment is a bad thing no matter what the numbers say otherwise. But then I also feel that people shouldn't finance luxury purchases (including cars) and that they shouldn't buy into such a timeshare with other debt other than a reasonable mortgage. I also have the opinion that in reality and no matter how the numbers look, DVC rarely saves people money and that includes most of those that say it has. What it may do is to give them added value for around the same dollars. I'd far rather someone not buy into DVC that would have done well with it than to have those that stretch themselves too thin or have life happen and DVC ends up not being a blessing. IMO it's as much about managing risk as it is savings.

[Dean]

Originally Posted by DougEMG

Lots of way to play with numbers...

I absolutely agree there are an infinite number of possibilities and I appreciate the info you did provide. Still, I'd point out the obvious, that your comparing DVC to DVC, simply to renting the same points every year vs owning. While I think your assumptions were reasonable for what they were, I'd also point out they represent the best case scenario IMO. For example, the chance of maint fees averaging 3.5% are fairly good but the chance of them being less long term is essentially none and the chance that they'll increase more is fairly high, again added risk. Of course for the OP they're looking at using 100 pts a year now and for a few years.

My goal is simply to get people to think about what they're doing and try to get some reasonable and real information and step back from the emotions somewhat to make a better long term decision for their situation.

[rojen]

Originally Posted by joelp

If you are going to WDW 1-2 times per year and staying in a 1BR, I wouldn't count on having too many "extra" points to rent out if you own 300 points ... A week in a 1BR "standard-type" view runs about 200 points (depending on time of year ...)

We fit in a studio and will for the next three or four years, then we will be looking to move into a one or two bedroom. So 100 works now, will need 300 in the future. Might just do two studios at that point too, 1br seem way over valued point wise.

[Deb & Bill]

Originally Posted by rojen

We fit in a studio and will for the next three or four years, then we will be looking to move into a one or two bedroom. So 100 works now, will need 300 in the future. Might just do two studios at that point too, 1br seem way over valued point wise.

Once the baby (number three) hits three, you'll have too many for a studio and will need a one bedroom at a minimum. And some one bedrooms will still only sleep four unless DVC does more modifications.

So unless number three is in utero, you'll be looking at two years from now in a one or two bedroom villa.