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Old 06-06-2013, 06:31 PM   #16
goNDmay9
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Originally Posted by Jason99 View Post
I actually feel bad for you if you have to put this much thought into vacation. I would just rent if I were you
What was the purpose of posting that? Some people enjoy number crunching and other's don't.
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Old 06-06-2013, 07:09 PM   #17
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I actually enjoy seeing others really try to simulate the long term value of dvc....like anything complex or with economics involved, there is no simple answer.....except that I agree that DVC makes more sense for those who are more pessimistic.

In general, people who own and buy hard capital goods or real estate do better than those who own or hoard cash or annuities during sustained poor economic conditions....provided that their own economic circumstance does not force them to sell early and they continue to have the economic resources to take advantage of opportunities.

There is certainly a significant risk of a major dollar devaluation due to debt/printing of money by the fed or a sustained inflationary spiral like the USA went through in the 70's....For those who are pessimistic, DVC does act somewhat as a hedge - at the minimum, to ensure that they will still be able to afford to take vacations.

That said...there is so much uncertaintity and disney could restructure things significantly at any point that forecasting for the long term isn't horribly helpful... DVC is just a small part of doing what one can to prepare for both good times and bad, and has its own pitfalls and tradeoffs. Some of us just like that it provides more structure and a fixed budget for vacation planning....
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Old 06-06-2013, 07:18 PM   #18
dmunsil
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I agree with this. I feel a better comparison would be to use point rental rates, say go with David's current $14.00 per point rental costs rather than rack rates.

Since you have your spread sheet already, can you plug in rental rates versus rack rates and check the differences?
For BLT, using point rentals at $14/point instead of cash rack rates produces a NPV of $97,913. At $12/point it's $77,300. This assumes that point costs will go up in price a roughly the same rate as dues and cash rooms.

What I'm doing is adding the price for a week of a studio, a one bedroom, and a two bedroom and calling that the "cash equivalent" of the points for the same three rooms. I can't use one room, because the ratio of cash prices between studios and one bedrooms is different from the points ratios.

Once I have that cash equivalent, I can calculate the "cash per point" ratio, which is really the equivalent of the cost of a point rental. Essentially it says that for one point, I can get this much cash value of a room in this resort. It ranges from $14.60 at BLT to $19.20 at AKV. So renting points at $14 isn't a huge savings from cash overall at BLT, at least during the season I'm looking at for the basket of rooms I'm using as a proxy. It obviously varies from room to room and season to season.

Just so you can see, those three BLT rooms in that season are $502, $606, and $838 per night respectively. Add those together and multiply by 7 gets you $13,622. Take off a 10% discount and then add the 12.5% room tax and you get $13,792. Those three rooms in that season cost 174, 341, and 430 points for a week, respectively, or 945 points. Multiply by $14 gets you $13,230. Not a huge discount.

I took a stab at the "cheapskate" scenario, where one buys the cheapest points in terms of maintenance fees (BLT) and then uses them to buy the rooms with the biggest cash value per point, which (of the rooms I'm looking at) are AKV Savannah studios, at a cash per point of $26.10. That produces a NPV (with the 3% dues inflation and 4.5% interest) of $194,902.

Then I looked at the "spendthrift" scenario, where one buys the most expensive points (BWV) and uses them to buy the rooms with the lowest cash value per point (BLT one-bedrooms). That has a cash per point of $13.98, and an NPV of $48,354.

Last edited by dmunsil; 06-06-2013 at 07:40 PM.
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Old 06-06-2013, 07:22 PM   #19
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I'm curious. Did you major in accounting/ finance / engineering, or got intimately acquainted in this subject somewhere else.
I originally was a math major, but I got bored and switched to theatre. Now I'm a software engineer. No finance background, but plenty of math and an interest in fiddling with numbers.

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...there is so much uncertaintity and disney could restructure things significantly at any point that forecasting for the long term isn't horribly helpful...
I essentially agree with this. As Yogi Berra once said, "Predictions are difficult, especially about the future."

I think it's useful to do these kinds of calculations if nothing else to get a feel for how good a particular deal is, how bad things can get and still realize a benefit, etc. I would never tell anyone that my chart represents some kind of scientific prediction about the future value of a DVC contract. It's a model. It can tell you some interesting things, but folks should never forget that the map is not the territory, so to speak.

Last edited by dmunsil; 06-06-2013 at 08:03 PM.
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Old 06-07-2013, 12:18 PM   #20
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I'm in the "use rental values" camp. At the end of the day, the market value of a single point is whatever someone is willing to pay for it. Once that equivalency is made, the only other things that matter are how long, and how much are maintenance fees. How long is known. Maintenance fees and their rate of growth are obviously a guesstimate. Trying to compare to rack rates is, IMO, a bad comparison, as it's pretty clear that the cash rack rates for DVC restorts are wildly inflated, as are the point values of the "disney collection" resorts.

So really, you can just NPV 50 years of whatever you think a point rents for right now - $11, $14, whatever. Grow it if you like, I prefer to be conservative and assume that they stay flat. At a 3% cost of capital (current 30 year T-Bond rate) and $11/pt, a single point is "worth" right at $300. Subtract out the per-point NPV of the expected maintenance fees, and voila - you have an actual value per point.

Another way that I thought to do it yesterday is to simply look at it as an interest bearing investment. You have some cash outlay that will return $11 (or whatever) per point, per annum. For instance, BLT points can be bought resale in the neighborhood of $100/pt. That will return $11/pt annually, but you will also pay $4.50/pt in MF annually, and you have to depreciate the $100 over the next 46 years (straight line, that's another $2.16 per year). Net profit is $4.34 annually, or 4.3% annual ROI. That'll probably stay pretty constant, as it's a pretty safe assumption (IMO) that MF and rental rates will rise in concert. Not an amazing deal, but some of the others are pretty good. Saratoga looks more like 6.5%, which is a pretty good rate in today's environment.
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Old 06-07-2013, 12:38 PM   #21
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That'll probably stay pretty constant, as it's a pretty safe assumption (IMO) that MF and rental rates will rise in concert. Not an amazing deal, but some of the others are pretty good. Saratoga looks more like 6.5%, which is a pretty good rate in today's environment.
If history is any indication, rental rates will not rise in concert with MF's. MF's have consistently risen about 3.5% per year on average across all resorts.

See here: http://www.disboards.com/showthread.php?t=1222819

Back in 2000 rental rates were $10 pp. The above thread was from 2006 complaining that rental rates were still $10 pp. And still today in 2013 you have owners willing to rent for $10 pp.

Now, at some point down the line when MF's creep towards $10, the hope would be that rental rates will get a bump. But they certainly have not kept up with rising MF's.
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Old 06-07-2013, 02:13 PM   #22
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Right now, rentals are a pretty inefficient market, in that people don't know about them. On a disney nerd scale from 1-10, my wife and I are in the 6.5-7 range, and I only learned about point rentals a couple of months ago. The current $14/pt charged by some of the middle-men out there basically makes a DVC studio the same cost as a moderate studio. Seems to me that either nonDVC resorts have to get cheaper or rental prices have to go up.

Even at the prices you quoted, a 40% rise over 13 years is 2.6% compounded. MFs definitely tend to rise at or above that, depending on the resort, but I just can't see rental prices lagging cash rack rate increases in the long term.
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Old 06-07-2013, 02:42 PM   #23
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MFs definitely tend to rise at or above that, depending on the resort, but I just can't see rental prices lagging cash rack rate increases in the long term.
No dispute about the market inefficiencies, but this is just not true. Rental prices were $10 in 2000 and 13 years later they are still $10. You saying that cash rack rates have not gone up in 13 years since 2000?

I would say 13 years is pretty long term seeing that DVC has only been around for 22 years.

Note: I am not saying that rental rates won't go up in the future (just like David's Rentals went from $13 to $14). I am saying that historically they have not gone up at the same rate of MF's increases and cash rack rate increases. And that is a fact.
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Old 06-07-2013, 03:13 PM   #24
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I've been tracking the value of my DVC purchase since I bought it a few years ago, but I've taken a different tactic. I'm mainly concerned with when I hit the break even point on my purchase.

I track all money going to DVC by dollar amount and date (100 SSR points in May 2010). I convert all monies to today's dollars based on the date (I use 3%, but that can be changed easily enough). I also track the value I receive from DVC based on the rack rate for the rooms I get minus 40 percent. I know that 40 percent is on the high side for a discount, but I wanted to be conservative. I also use the date to convert to today's dollars.
(I also have the same spreadsheet where I use point rental costs.)

Each time I pay dues, I count that too along with the date.

I'm pretty close to breaking even, especially if I include the money saved on our cruise last summer (we were already going on the cruise and actually received a refund from Disney! Better room, less money, what's not to love?). We break even on our next DVC trip in January. (For counting by point rental we would still be 2000 dollars short).

Considering we only bought in 2010, I think that is pretty remarkable. I was shocked. I didn't expect to break even until 2018 at the earliest (The Cruise discount really helped).


Another thing I like to track is the VPP (Value per point) for each of my trips. Again, I use a 40% discounted rack rate (plus tax) to calculate the value. Then I divide that by the number of points for the stay.

My best is 21 dollars per point. My worst is 11.50 - especially since I am using rented points (12$) for that reservation. But again, my VPP is conservatively low since I'm assuming a 40% discount, which is high and likely not obtainable.

One of these days I want to make a chart of all the rooms in DVC and show the value per point versus rack room rates. I think that would make me smile. Heck, Disney should do that with full Rack Rates to show off the value of DVC.
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Old 06-07-2013, 03:16 PM   #25
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No dispute about the market inefficiencies, but this is just not true. Rental prices were $10 in 2000 and 13 years later they are still $10.
Well... 13 years ago they were mostly $10, with occasional rentals for 8 or 9. Now 10 is the floor, and it doesn't happen very often. The common rate is about 11-13. The average rate has pretty clearly gone up.

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Note: I am not saying that rental rates won't go up in the future (just like David's Rentals went from $13 to $14). I am saying that historically they have not gone up at the same rate of MF's increases and cash rack rate increases. And that is a fact.
As someone famous said, "If something cannot continue forever, it must eventually stop." Obviously rental prices need to be related to both dues and cash rates. I would expect them to be somewhere between those two numbers, which is where they are now.

I do think they'll be sticky, like a lot of things denominated in small dollar amounts. But if the average price now is, say, $12, we won't see people asking $12.09 next year, then $12.16 the year after. Instead, you'll see a larger and larger number of people asking $13 or $12.50 and getting it, while other people hold the line at $12 and rent faster, but over time the average price creeps up.
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Old 06-07-2013, 03:19 PM   #26
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I originally was a math major, but I got bored and switched to theatre. Now I'm a software engineer. No finance background, but plenty of math and an interest in fiddling with numbers.
Interesting. Thanks.

I sometimes ask myself...why did I major in Finance? Theater sounds so much more like fun!
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Old 06-07-2013, 03:47 PM   #27
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I did want to make one point about an intangible but real difference between cash, renting, and DVC ownership, which is convenience and flexibility.

Cash bookings of rooms (not vacation packages) are supremely flexible at WDW. You can cancel up to 5 days in advance and get your complete deposit back. And you only need to put down 1 day worth of cash as a deposit.

DVC bookings are pretty darn flexible, but there is a downside to canceling at 30 days or below that can make your points hard to use and hard to rent, ultimately meaning their value goes down. You have no deposit (unless you count the cost of your DVC membership )

And rentals are not very flexible at all. Actual terms vary, but it seems like most people want half the cash up front and half before the 30-day mark, and won't refund all or part of that if the renter cancels too late. David's wants all the money up front and doesn't allow cancellations.

So one principle of economics is that convenience and flexibility are worth money. Yes, the room you finally stay in is exactly the same no matter which of the three methods you use, but the ability to cancel if your plans change or you have a difficulty is worth real money. The trouble is I don't know how much that is. But it does explain, perhaps, why renting can be so much cheaper than cash booking. Combine that with the lack of knowledge of renting and the illiquid, thinly traded market, and it does suggest that renting is always going to be cheaper than cash booking direct.

It might be that the rental price will tend to settle at one common price for a while until people start to notice that it's not really giving them enough money over their dues payments to be worthwhile, and then it'll go up quickly to another stable value and stay there. Time will tell.
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Old 06-07-2013, 05:51 PM   #28
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No dispute about the market inefficiencies, but this is just not true. Rental prices were $10 in 2000 and 13 years later they are still $10. You saying that cash rack rates have not gone up in 13 years since 2000?

I would say 13 years is pretty long term seeing that DVC has only been around for 22 years.

Note: I am not saying that rental rates won't go up in the future (just like David's Rentals went from $13 to $14). I am saying that historically they have not gone up at the same rate of MF's increases and cash rack rate increases. And that is a fact.
I'm sorry, but this is an inaccurate assessment of the current rental market. Yes there are some owners willing to rent for $10 per point, but those are mostly distressed points. The rate at two point brokers is $14. 11 month bookings at desirable resorts frequently rent for $13. The typical number for non distressed points on the rent/trade boards is $12. Point brokers are paying owners $11-$11.25 depending on the broker. So, with all due respect, your statement about the point rental market being stuck at $10 is incorrect as are the assumptions you made based on that statement.
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Old 06-07-2013, 06:27 PM   #29
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I'm sorry, but this is an inaccurate assessment of the current rental market. Yes there are some owners willing to rent for $10 per point, but those are mostly distressed points. The rate at two point brokers is $14. 11 month bookings at desirable resorts frequently rent for $13. The typical number for non distressed points on the rent/trade boards is $12. Point brokers are paying owners $11-$11.25 depending on the broker. So, with all due respect, your statement about the point rental market being stuck at $10 is incorrect as are the assumptions you made based on that statement.
If I came across as the point rental market is stuck at $10, I am sorry that is not what I was trying to say.

TL;DR - My point is that I think we can all agree that rental prices have not kept up with the rate of inflation of MF's. Fact.

Back in 2000 (and earlier, I just didn't look further back) the rental rate was $10pp. I agree that of course the rental rate has increased, but it is still possible today to get points at $10. Now, online brokers have bumped up to $14pp. But we can't use that number, because we have to use what the DVC OWNER is getting because this discussion was about the NPV for the DVC OWNER.

I certainly acknowledge that some owners get $13 for certain locations in the 11-month window and also that the typical number is $11-$12pp. I just quickly looked at the Rent/Trade board and found that most are $11-$12 with a few $13 and some distressed at $10 and lower.

If anyone had data prior to 2000 on what the typical rate was that would be helpful, but lets just say the rate was bumped to $10 in 2000 and was adjusted upwards at the same rate as the MF's over the same time period until now, we would expect the rental rate to be above $15.50 by now. Which it is not.

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Old 06-07-2013, 08:38 PM   #30
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TL;DR - My point is that I think we can all agree that rental prices have not kept up with the rate of inflation of MF's. Fact.
My take on it is that at $10 back then, they were a tad overpriced. But it was very difficult to get a cash reservation and DVC felt like a new and unique thing that people wanted to try for themselves. So renting was the only way to try it out.

Now it's pretty easy to get cash reservations most of the year if you're willing to lay out the bucks, and if there are good sales cash can actually be cheaper than renting. So the rental fees now may be a little underpriced, but not by a huge amount. I think most renters probably want studios, and those are the highest cash to point ratio at WDW.

If you rent points to get a Kidani studio, you're making out like a bandit compared with cash rates, but if you rent points to get a BLT one-bedroom, you're losing money for a good chunk of the year.

Anyway, I think going forward point rental is going to roughly (very roughly) track the inflation rate of dues and cash prices. I know I said predictions are difficult, especially about the future, but this one seems solid.
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