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Disney Vacation Club Trip Planning Guide
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Brian Bennett
Disney Vacation Club Planning Guide


The Program:
What is the Disney Vacation Club?  |  Is the Vacation Point Purchase Tax Deductible and Deeded?  |  What is the DVC "Use Year?"  |  What is your "Home Resort"?  |  What is the DVC's Record on Maintenance Fees?  |  How do Can You "Spend" Your Vacation Points?

The Great Debate:
What's the Opposing argument?  |  An Internet Debate on the DVC  |  A Financial Analysis of DVC Membership  | 
Comments on A Financial Analysis of DVC Membership  |  Another Financial Analysis Comparing OWKR, BVR, and VWR

The Resort Facilities:
What Are the Resort Accommodations Like?  |  Disney's Old Key West Resort  |  Disney's Boardwalk Villas Resort  |  Disney's Vero Beach Resort  |  Disney's Hilton Head Island Resort  |  Villas at Disney's Wilderness Lodge Resort  |  Disney's Newest DVC Resort Facilities

Other Options:
The Disney Collection  |  Concierge Collection  |  Adventure Travel  |  Interval International

DVC Point Chart Index:

Disney Vacation Club Summary  |  How to Contact the Disney Vacation Club  |  DVC Resellers

Comments on A Financial Analysis of DVC Membership

In response to Robin Beal and David Luner's "Financial Analysis of DVC Membership,", reader John Duffy (j.k.duffy@worldnet.att.net) provided some comments.  There is going to be a bit of back and forth here, as I included my responses to John and his emails back to me, but the total correspondence has some very interesting financial insights. so here goes...

Hi Brian,

I am dropping you a note after reading the financial analysis of the Disney Vacation Club I read on Mouseplanet.com written by Robin Beal and David Luner. I would like to start off by commending you and the others at MousePlanet for a simply remarkable website. I wish I had found it sooner than I did.

The financial analysis however stood out to me because I did my own thorough analysis several years ago in hopes of finding an economic justification for buying into the plan. I am a huge Disney fan and love the resorts (I'm currently planning a trip to OKWR, I'll be renting the points from a DVC member), but the numbers just didn't justify buying into the club.

Needless to say, I was surprised to see a mathematical study that actually came to the conclusion that membership in the club made sense strictly from an economic standpoint. But after looking over the numbers in the article, I found two issues that I thought I should bring to your attention.

Firstly, you cannot adjust a long term return of 10% in the stock market for taxes on an *annual* basis because you don't pay taxes annually. You only pay taxes upon selling the securities. If you are comparing two 45 year investments, then presumably you wouldn't pay any taxes on your stock investments until after 45 years. In other words, your money grows at 10%, not 6.5%.

Secondly, long term capital gains are taxed at 20% (with a real possibility of going to zero % with current proposals in Washington), not the marginal tax rate of 35%.

Anyhow, when you run the numbers through again, the effects are dramatic. Where Robin and David calculate "*lost* income on principal" to be $55,676; the actual number is $199,992 (gains on $13,150 at 10% for 45 years minus 20% cap gains tax discounted back at 3% assumed inflation). Such is the miracle of compound interest when you go 45 years at 10% instead of 6.5%. The math from here on out is really a moot point.

Of course you may never get 10% over 45 years in the stock market (but you could also do better) and you would almost certainly sell some stocks along the way to buy others, paying some taxes along the way. Also, room rate inflation may be higher that 8% and actual inflation may outpace maintenance increases. If you massage all these numbers you pretty much can come up with whatever answer you wish. But when I put in all the numbers that *I* thought were realistic (and believe me, my wife and I were looking for any excuse possible to join in), it just didn't add up for me. I especially don't see room rate increases continuing at 8% and that is the key. You will get those 8% jumps when the economy is booming, but you will have flat years and heavy room rate discounts when the economy is slow. And as Disney continues to sell more memberships, it appears there will be a steady supply of members looking to rent unused points, giving non-members a chance to stay at those awesome resorts at a fraction of Disney's advertised rental rates.

Anyhow, I didn't mean for this to get so long, thanks for reading this far and happy vacationing to us all no matter how we pay for them!!!

to which I responded:

Thanks for the note, John. I'd like to add your comments to the DVC section of the site. May I have permission to do so?

and John replied:

Hi Brian,

I don't mind you putting it up at all, but if you are interested and don't mind waiting a couple of days I will dig up my old analysis and give you something more balanced and complete. I promise not to make it too long. Otherwise you have my permission to post the note as is.

I answered:


I'll happily wait for your complete analysis. I very much like the idea of providing balance on my MousePlanet pages as it gives all sides to any discussion. Then my readers can make informed decisions themselves.

I'll be looking forward to getting that write up from you!

and finally, John replied with:

Hi Brian,

Sorry it has taken me so long to respond but I've been in heated debate with a friend of mine who disagreed with my methodology and I've come to the conclusion that he is correct :( Actually it's good news for those looking to get into DVC!

As I previously wrote, subtracting taxes annually on a long term investment greatly understates the actual return on such an investment. By using the marginal tax rate (35%) as opposed to the long term capital gains tax rate (20%), you compound that error several-fold. However, as I (as well as Robin Beal and David Luner) might argue over how to calculate the return on investment that is lost by buying into DVC, the real issue is whether or not to include such a calculation at all.

The logic is, if you buy into DVC you are paying cash up front for accommodations in the future instead of investing the money today and just paying for your vacations as you go. This is certainly the case in the early years after buying into DVC, but every year you pay DVC dues instead of cash for a vacation (in which case the dues are much less then the cash cost of WDW accommodations), this "investment" decreases. An example will clarify this point...

Using Robin and David's numbers, the up front cash cost of joining DVC is $13,150. If invested instead of spent on DVC, this amount would have grown to $14,005 after one year (at 6.5%, $13,150 X 1.065=$14,005). The investment would grow by another 6.5% after year two, to $14,915 ($14,005 X 1.065), and so on...

But here is the problem... after one year the DVC member pays dues of $702 whereas the non-DVC member must pay for a hotel. Using a more reasonable comparison (I think we would all agree that the All-Star Resorts are no comparison to a DVC studio) of ten days in a moderate on sale (still being too generous but it allows the point to be made) at $150 per night. The non-DVC member must pay $1,500 in hotel rent which is more than twice the DVC members dues, at a difference of $798 (which incidentally will increase every year that hotel price increases outpace dues increases).

Now, back to the investment analysis. After one year we got to $14,005. But now we must decrease this number by the difference between the year one DVC dues and year one hotel costs, $798, before calculating the investment balance for the start of year two. So after two years, instead of having an investment worth $14,915, you really only have $14,065 [($14,005 - $798) X 1.065 = $14,065] Now, before calculating the return for year three we must reduce this amount again by the difference between year two DVC dues and year two hotel costs (at this point the investment begins to go down instead of up). This goes on until the investment balance runs down to zero and eventually it is the DVC member with extra funds to invest at an increasing rate every year so long as DVC dues are lower than equivalent hotel costs. I have played around with the numbers and it is difficult to get the original $13,150 to last more than 8-10 years.

Anyhow, there is an easier way. All you need to do is take the present value of all vacation accommodation spending under the two different scenarios (join DVC or pay cash as you go for accommodations), and compare them to each other. In this case you get the same end result although the break-even point is shorter (this is due to the fact that most of us would use an investment return rate higher that the inflation (discount rate), if you set the after tax investment return to the inflation rate the two methods return identical results).

The bottom line is this... it is true that you have more money to invest in the markets up front by not joining DVC, but it is also true that if you don't join DVC you have less money every year for 40+ years by paying cash for hotels instead of DVC dues. Using reasonable estimates for inflation, market return, hotel inflation, dues inflation...etc., you will miss out on investment return in the early years but make it all back and much more in the later years by joining DVC. Of course this is strictly a financial analysis and assumes that you are visiting WDW on a regular basis and staying in like accommodations. It also assumes that you do not waste points in any way by letting them expire, staying disproportionately on weekends, or trading them for stays at non DVC resorts (even trading them for other WDW hotels will significantly negatively alter the analysis).

So that's it. I'm sorry it turned out that I agree with the overall conclusions of your previous analysts, I know you were looking for some counterpoints for balance. The DVC is not a cheap timeshare system, that's for sure. But if you're going to WDW on a regular basis anyhow and staying in mid-level or higher on sight hotels (and plan to indefinitely), you will save a lot of money by joining DVC, so long as you use the points system wisely.

Thanks for giving me the opportunity to sound off, and thanks again for the great web-site.


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