DVC RESALES
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Old 04-30-2013, 05:12 PM   #151
Galun
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Originally Posted by MoreTravels View Post
The good thing is 'supply and demand' is controlled by only a few people. If Dave, Disboards, and another Mouse forum decide to rent at $14 per point then the non-member will have no choice. The rental rate will have to go up. With resale rate up by 10% since 2013, I expect people will ask for more money for rent soon.
I just bought my first DVC contract so I have no personal experience on the history of rental rates. To me one of the major risk factors is decoupling in the growth rate in rental rates for points vs. mf for points. I don't see any reason why they would decouple (as in mf growing much faster than rental rates) in the long run because rental rates for points should be correlated with Disney rack rates for rooms, and you can bet that Disney is going to raise room rates at a pace that will ensure continued expansion in profit margin.

Could there be temporary disruptions through economic cycles where rental points rates are depressed? Certainly. Will it normalize over time through economic cycles? I think so.

At the end of the day, one has to make assumptions that they are comfortable with and then make the decision from there.
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Old 04-30-2013, 07:53 PM   #152
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Originally Posted by Galun

I just bought my first DVC contract so I have no personal experience on the history of rental rates. To me one of the major risk factors is decoupling in the growth rate in rental rates for points vs. mf for points. I don't see any reason why they would decouple (as in mf growing much faster than rental rates) in the long run because rental rates for points should be correlated with Disney rack rates for rooms, and you can bet that Disney is going to raise room rates at a pace that will ensure continued expansion in profit margin.

Could there be temporary disruptions through economic cycles where rental points rates are depressed? Certainly. Will it normalize over time through economic cycles? I think so.

At the end of the day, one has to make assumptions that they are comfortable with and then make the decision from there.
I can provide you with one potential reason why the situation you describe might occur. Maintenance fee increases are compounding (they are given in terms of percentages) whereas point rental prices increase incrementally. Furthermore, I do not see a strong connection between rack rates and point rental prices. Point rental prices are determined by supply and demand for points. If point rental prices were tied to rack rates, the enormous gap between the two would not exist, in my opinion.
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Old 04-30-2013, 09:44 PM   #153
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I can provide you with one potential reason why the situation you describe might occur. Maintenance fee increases are compounding (they are given in terms of percentages) whereas point rental prices increase incrementally.
I think maintenance fees increase primarily due to inflation, right? The same factor impacts cash room and point rentals. There are other elements involved, but for the most part over time I wouldn't expect their rise to be vastly different. I could definitely see more fluctuation in point rental prices, due to economic factors and short-term trends, while inflation will drive a more regular increase for MFs. But over the long run, the short-term effects probably are just that, and the prices will go up similarly.
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Old 04-30-2013, 10:25 PM   #154
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I think maintenance fees increase primarily due to inflation, right? The same factor impacts cash room and point rentals. There are other elements involved, but for the most part over time I wouldn't expect their rise to be vastly different. I could definitely see more fluctuation in point rental prices, due to economic factors and short-term trends, while inflation will drive a more regular increase for MFs. But over the long run, the short-term effects probably are just that, and the prices will go up similarly.
I agree with you in that there is a correlation between MF and rental rates and that they will not decouple in the long run.

MF though will go up annually by a percent while rental rates will follow behind, staying steady for a number of years and then jumping up all at once, always playing catch up.

Now if Disney ever gets out of selling DVC units and renting hotel rooms, then I would expect MF and rental rates to totally decouple.
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Old 04-30-2013, 11:00 PM   #155
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I think maintenance fees increase primarily due to inflation, right? The same factor impacts cash room and point rentals. There are other elements involved, but for the most part over time I wouldn't expect their rise to be vastly different. I could definitely see more fluctuation in point rental prices, due to economic factors and short-term trends, while inflation will drive a more regular increase for MFs. But over the long run, the short-term effects probably are just that, and the prices will go up similarly.
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I agree with you in that there is a correlation between MF and rental rates and that they will not decouple in the long run.

MF though will go up annually by a percent while rental rates will follow behind, staying steady for a number of years and then jumping up all at once, always playing catch up.

Now if Disney ever gets out of selling DVC units and renting hotel rooms, then I would expect MF and rental rates to totally decouple.
I wish I shared your optimism with regards to the ability to rent points for a profit. But DVC is the only timeshare system I know of that provides this much of an opportunity for profits above and beyond annual maintenance fees. Yes, I understand that DVC is unique, but it's a timeshare nonetheless. We are entering into a new period of DVC, one with outrageous direct prices that were most likely not foreseen. I wonder what else it is we're not seeing.
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Old 05-01-2013, 06:47 AM   #156
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I think maintenance fees increase primarily due to inflation, right? The same factor impacts cash room and point rentals. There are other elements involved, but for the most part over time I wouldn't expect their rise to be vastly different. I could definitely see more fluctuation in point rental prices, due to economic factors and short-term trends, while inflation will drive a more regular increase for MFs. But over the long run, the short-term effects probably are just that, and the prices will go up similarly.
Historically rental prices haven't tracked inflation or rooms rates very much. We've gone from around $10 a point in the mid to late 90's to $13 today (with some ups and downs). As for fees tracking inflation, they SHOULD track inflation related to the area and type of services and products used but not necessarily the overall reported inflation rate. However, that assumes good choices and projections by the management team, no unexpected or unplanned issues,no major changes like upgrades and no hanky-panky on the side of DVCMC or any executives. Timeshare and even Disney history doesn't suggest that perfect world is likely to last. It goes back to something I posted previously on another thread (I think), that when one looks at DVC there really is almost no chance of an unexpected upside, all risks and variables are almost certain to go against you if your assumptions go sideways.
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Old 05-01-2013, 07:25 AM   #157
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When the economy went South in 2009, there were more rental points on the market than people who wanted to go to Disney and rent points. Disney had good deals, and when Disney has good deals (like free dining), rental points don't look as attractive. There was a period where there were no guarantees you'd be able to rent your points at all, although most people did.

If gas prices were to increase significantly, like they did in 2007 and 2008, we see less vacationing. Airfare gets expensive, driving gets expensive, and people have their daily budget hit by gas prices. That would affect rentals. In 2007 and 2008 people were frequently renting their points for less than the $10 going rate at that time.

Disney themselves also has a lot of power. People renting points are their competition, and if they choose, they could throw a monkey wrench into our ability to "sell" our product. For instance - no Magical Express unless accompanied by a member. Renters are not allowed to put in room requests and get the "worst" rooms in the buildings. No ability to buy a dining plan without the member present. They've already come down harder on renters getting member discounts.
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Old 05-01-2013, 10:54 AM   #158
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I wish I shared your optimism with regards to the ability to rent points for a profit. But DVC is the only timeshare system I know of that provides this much of an opportunity for profits above and beyond annual maintenance fees. Yes, I understand that DVC is unique, but it's a timeshare nonetheless. We are entering into a new period of DVC, one with outrageous direct prices that were most likely not foreseen. I wonder what else it is we're not seeing.
While DVC is a timeshare, it has a very large moat called WDW that makes it different from all other timeshares out there. As long as people want to stay on site at WDW then DVC or a Disney hotel is the only option. So there is a limited supply of onsite accomodations and a lot of demand, as long as that doesn't change I don't think the value of owning DVC will change.
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Old 05-01-2013, 11:08 AM   #159
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Historically rental prices haven't tracked inflation or rooms rates very much. We've gone from around $10 a point in the mid to late 90's to $13 today (with some ups and downs). As for fees tracking inflation, they SHOULD track inflation related to the area and type of services and products used but not necessarily the overall reported inflation rate. However, that assumes good choices and projections by the management team, no unexpected or unplanned issues,no major changes like upgrades and no hanky-panky on the side of DVCMC or any executives. Timeshare and even Disney history doesn't suggest that perfect world is likely to last. It goes back to something I posted previously on another thread (I think), that when one looks at DVC there really is almost no chance of an unexpected upside, all risks and variables are almost certain to go against you if your assumptions go sideways.
I don't think rental prices will track inflation smoothly in the short run. Rental prices should be tied to the economic cycle similar to hotel rates. When occupancy is low (like during the recession), the rates will collapse. When occupancy is high, rates will firm up. When these ups and downs are normalized over the long run, the rental rates should track hotel rate increases.

MF should track inflation of wages... I thought I read somewhere that 2/3 of MF are used to pay direct wages at the resorts.

I would argue that Disney raising direct prices and thus firming up the resale market over the past couple months is an unexpected upside. But I do agree with you that the current implied rate of return in the mid to high teens is probably the best case assumption.
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Old 05-01-2013, 11:08 AM   #160
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When the economy went South in 2009, there were more rental points on the market than people who wanted to go to Disney and rent points. Disney had good deals, and when Disney has good deals (like free dining), rental points don't look as attractive. There was a period where there were no guarantees you'd be able to rent your points at all, although most people did.

If gas prices were to increase significantly, like they did in 2007 and 2008, we see less vacationing. Airfare gets expensive, driving gets expensive, and people have their daily budget hit by gas prices. That would affect rentals. In 2007 and 2008 people were frequently renting their points for less than the $10 going rate at that time.

Disney themselves also has a lot of power. People renting points are their competition, and if they choose, they could throw a monkey wrench into our ability to "sell" our product. For instance - no Magical Express unless accompanied by a member. Renters are not allowed to put in room requests and get the "worst" rooms in the buildings. No ability to buy a dining plan without the member present. They've already come down harder on renters getting member discounts.

Definitely, the overall state of the economy is going to effect the demand and supply of rental points and a ceiling is always going to be set by what Disney is renting their rooms out at. Rental rates were at $10 for a long time because they started at a high rate compared to MF and then the recession hit and the supply of rental points increased while the demand decreased, so renters had no ability to increase the rental rates. But look what is happening now that the recession is over, rates have increased very quickly and are now $11-$14 per point. For high demand times and locations the norm is $13/point.


Given that Magical Express is paid for by our dues, I'm fairly sure that they couldn't do that. Removing the ability to purchase the DP is something they could do, given it is a big money maker for them, why would they.

If Disney were really that concerned with the rental market and had the power to do something about it, don't you think they would have done something during the last recession when their hotel accupancy rates dropped.
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Old 05-01-2013, 11:11 AM   #161
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While DVC is a timeshare, it has a very large moat called WDW that makes it different from all other timeshares out there. As long as people want to stay on site at WDW then DVC or a Disney hotel is the only option. So there is a limited supply of onsite accomodations and a lot of demand, as long as that doesn't change I don't think the value of owning DVC will change.
I agree. I think Disney timeshare is unique in that there is little substitution. The same analysis that I did on Disney doesn't really apply to other timeshares. If you try to rent out your Marriott time share for prices that are too high, people will just go somewhere else. For Disney, there is really no alternative if you want to stay on site. As long as there is a sufficient spread between Disney hotel rack rates and DVC rental points, I think the value of DVC rental points can be maintained.
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Old 05-01-2013, 01:04 PM   #162
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I agree. I think Disney timeshare is unique in that there is little substitution. The same analysis that I did on Disney doesn't really apply to other timeshares. If you try to rent out your Marriott time share for prices that are too high, people will just go somewhere else. For Disney, there is really no alternative if you want to stay on site. As long as there is a sufficient spread between Disney hotel rack rates and DVC rental points, I think the value of DVC rental points can be maintained.
I agree with a lot of what has been said in the past few posts. My concern is not the collapse of point rental prices, but the narrowing of the gap between maintenance fees and point rental prices. It's happening at Vero Beach right now, and I feel that is a glimpse into the future for all DVC resorts.

My question is, if there really is a connection between rack rates and point rental prices, then wouldn't point rental prices be higher? Taking a sampling of reservations, the discount for renting points compared to rack rate is somewhere between 40-60% depending on resort, room size and time of year. To me that seems like way too big of a disparity for one to make a connection between the two. It would seem that if there really were a connection, then a larger portion of those who pay rack rates would take advantage of this discount by renting points, thus driving up the rental price and narrowing the gap. I think that point rental prices are dictated by the economic factors of the point rental market and that they are generally independent of direct bookings. The only connection I think could be established is a negative one, if point rental prices got too close to direct booking prices.
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Old 05-01-2013, 02:38 PM   #163
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I agree with a lot of what has been said in the past few posts. My concern is not the collapse of point rental prices, but the narrowing of the gap between maintenance fees and point rental prices. It's happening at Vero Beach right now, and I feel that is a glimpse into the future for all DVC resorts.

My question is, if there really is a connection between rack rates and point rental prices, then wouldn't point rental prices be higher? Taking a sampling of reservations, the discount for renting points compared to rack rate is somewhere between 40-60% depending on resort, room size and time of year. To me that seems like way too big of a disparity for one to make a connection between the two. It would seem that if there really were a connection, then a larger portion of those who pay rack rates would take advantage of this discount by renting points, thus driving up the rental price and narrowing the gap. I think that point rental prices are dictated by the economic factors of the point rental market and that they are generally independent of direct bookings. The only connection I think could be established is a negative one, if point rental prices got too close to direct booking prices.
I think Vero Beach MF is an anomaly. The resort sustained damage in 2004 due to Hurricane Frances, and as a result we saw 6 - 8% increase in MF from 2005 - 2008. If you look at their operating budget, insurance is like $0.80 per point vs. <$0.10 for most other resorts. Housekeeping can be twice as much as other resorts - understandable given that it's a standalone resort. The MF at OKW is probably the more apples to apples comparison for the resorts within WDW.

Strictly from an investment point of view, I guess this means you should sell your contract if something happened to your home resort that will likely lead to potential for special assessment or faster MF rate increases.

On the spread between rental and rack rates, I think it's actually more like 10 - 30% due to the discounts from Disney, probably less if you consider bonus like discounted dining and stuff like that. I also think DVC rental is relatively unknown. I personally had gone on several cash stays and had no clue on how DVC works until about 2 months ago, and only when a current owner told me about it. I saw their booths but was never interested in taking the time to go listen to a timeshare presentation on a vacation.
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Old 05-01-2013, 03:19 PM   #164
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I agree with a lot of what has been said in the past few posts. My concern is not the collapse of point rental prices, but the narrowing of the gap between maintenance fees and point rental prices. It's happening at Vero Beach right now, and I feel that is a glimpse into the future for all DVC resorts.

My question is, if there really is a connection between rack rates and point rental prices, then wouldn't point rental prices be higher? Taking a sampling of reservations, the discount for renting points compared to rack rate is somewhere between 40-60% depending on resort, room size and time of year. To me that seems like way too big of a disparity for one to make a connection between the two. It would seem that if there really were a connection, then a larger portion of those who pay rack rates would take advantage of this discount by renting points, thus driving up the rental price and narrowing the gap. I think that point rental prices are dictated by the economic factors of the point rental market and that they are generally independent of direct bookings. The only connection I think could be established is a negative one, if point rental prices got too close to direct booking prices.
I actually think that the 40-60% range is reasonable given that Disney has typically been giving big discounts over the last few years (don't we always tell everyone to assume at least a 20% discount on rack rates when seeing if owning vrs paying cash makes sense), that you are sending money to strangers on the internet, you won't know until you get there that you are going to have a room and the cancellation rules most owners place on their reservation all make renting more risky than booking through Disney so a renter needs a fairly big savings off rack rate to make that all worth while. To me a 50% discount seems to be the sweet spot for both renters and owners.

If one looks at the 5 year average for MF increases at the WDW resorts and then apply that for the next 10 years, BWV, OKW, SSR and BCV should all have MF of around $8, VWK and AKV will be around $8.50 and BLT doesn't have enough data to try and forecast.

If you look at the next 10 years and assume an average 4% annual increase in MF, then OKW, SSR and BLT are still under $8 and the rest are under $9.

Compare that to rental rates of $11-$13 right now and even if the rental rates don't increase in the next 10 years (extremely unlikely), your rent is still going to cover over and above your MF.
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Old 05-01-2013, 03:54 PM   #165
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If you look at the next 10 years and assume an average 4% annual increase in MF, then OKW, SSR and BLT are still under $8 and the rest are under $9.

Compare that to rental rates of $11-$13 right now and even if the rental rates don't increase in the next 10 years (extremely unlikely), your rent is still going to cover over and above your MF.
I totally agree. But there have been posts on this thread that have assumed a continuous $6 gap between MFs and rental prices, which I don't expect to continue for the life of DVC contracts.
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