An Internet Debate on the
DVC
In addition to Pete Sapio's excellent post on the previous page, the
following text was taken from a dialog (called a "thread"
in the newsgroups) in the rec.arts.disney.parks Usenet newsgroup.
Rod started the discussion by questioning the financial wisdom of
buying into the DVC (or any other timeshare, for that matter). Several
responses reviewed the financials...others tended to focus on the
amenities and personal aspects behind making the DVC purchase decision.
Each of the following authors have cleared the use of their post here.
Rod <rod@uiowa.edu>
I'm pretty naive about timeshares and so don't understand their
appeal or economics. Let's say a timeshare costs $15000 for 7
days with a $500 yearly maintenance/tax fee. If instead of buying
that timeshare, I invest that $15000 in a decent mutual fund,
I should be able to average a 15% yearly return. That is an income
of $2250/year. Add to that the $500 fee that I would have had
to spend, and I now have $2750.
This means that if I don't buy the timeshare, I would have $2750/year
to spend on vacations (almost $400/day for a week). My wife and
I could stay for a week at the Grand Floridian without any obligations,
worrying about points, or date limitations. Even if my mutual
fund only performs at 10%/year on average, that will still provide
a vacation income of $2000 (almost $300/day...a week at the yacht
club).
So why would I want to commit for 50 years to the DVC when it
is actually cheaper to invest the money and use the income and
saved expenses for vacations?
just wondering
dmunsil@wolfenet.com (Don Munsil)
Well, first off, the idea that you can get a consistent 15% return
is pretty optimistic. Small cap stocks have performed at about
an average of 12%, and that's with HUGE fluctuations. Some years
you would be down 15%, and have no money to spend on vacations.
About the most you can *guarantee* on a consistent basis is 5-6%.
You also need to figure in inflation, in that you need to set
aside perhaps 3-5% of your income for reinvestment so that your
buying power won't go down. There will also be capital gains taxes,
which will lower your purchasing power about 28%. (However, you
can figure in that the maintenance fee will go up with inflation,
which helps make your investment idea more attractive.)
Well, I think your off-the-cuff analysis (which, BTW, is very
similar to my first look at the situation) is a little optimistic,
and once you figure in all the factors, it's not entirely clear
that your plan will save you money.
But you've hit on the reason Disney can offer this vacation plan.
They are getting cash money up front which they will "invest"
in park upgrades and resorts and so forth, and therefore don't
have to get the money from a bank. They figure what the vacation
plans are worth to them, how much they might lose from not being
able to rent the OKW at full price, how many people will let their
points expire unused each year, etc., and figure that this is
a good deal for them.
Not that it's *not* necessarily a good deal for the people who
buy it. Having a largely pre-paid vacation would be very satisfying,
and partially protects the buyer from inflation and fluctuations
in the markets.
In general, I tend to think that taking $15000 and putting it
in a balanced fund (reinvesting enough to keep pace with inflation),
and spending the proceeds on vacations, would be a perfectly good
"self-directed" vacation plan that would have the benefit
of being usable for any vacation anywhere. It's just not guaranteed
to pay for a week at OKW every year at the same time. :-) (Editor's
note: As you probably already know from reading through this material,
DVC members are not locked into any one period of time each year
for their visit.)
andrew@kelly.teleport.com (Andrew Klossner)
Your conclusion is right but the numbers aren't ...
No way can you sustain a 15% return. Have a look at ten years
or more of stock market history, not just this last year as the
bubble built. (In fact, since the bubble is due to collapse in
the next two years, stock-based mutual funds will show negative
growth, but that's a topic for another newsgroup ...)
A more standard optimistic return guess is 8% per year. Your
calculated income of $2250/year then becomes $1200/year. When
you add to that the $500 maintenance fee you now have $1700.
But you have to pay income tax on that $1200. I don't know what
state you're in, so let's guess an aggregate state+federal income
tax rate of 30%. This means you have a total of $1340 to spend.
There's also the inflation factor to consider. That $400 room
at the Floridian will cost over $1000 in 50 years.
But the $500 yearly maintenance fee will go up as well. But the
real bottom line is that Disney succeeds where most timeshare
operators have crapped out because people will pay a premium to
own a piece of Disney Magic.
HMXN12C@prodigy.com (Jose Sanchez)
Rod: There are many more people who I'm sure can offer better
arguments for (and against) a DVC purchase, but let me just point
out a couple observations I saw in your numbers.
- You're much more optimistic about mutual funds than I am.
Granted, you can make 15% now, but about the future...hard to
predict.
- What about the taxable portion of that 15%...2250.00@ 72%
= $1620.00.
- Unless all your income is tax exempt.
- You omitted any inflation factor for the costs of the hotels,
which has risen dramatically over the years. Note: I also recognize
that the annual fees at the DVC also rise. I'm sure someone
on here has actual statistics on hotel price increases.
- Unless you choose the "highest" season and/or in
combination with larger accommodations at the DVC (1-bed, 2-bed,
Grand Villa), you can typically garner *much* more than (1)
week at WDW. Using an "apples" to "apples"
comparison (a studio being like a hotel room), you might enjoy
up to 4-5 weeks at WDW.
- The portion of annual increases which relate to property taxes
can be deducted from your income taxes. I've read debates on
the ability to deduct the "interest" should you finance
your DVC purchase, but can't speak to the issue first hand since
we did not opt to finance our purchase.
Just some thoughts. We did not look at the DVC as an "investment",
but rather as a "pre-paid" vacation which will be there
for us in future years...otherwise, I'd just spend that money
on something like a used 'vette, and no vacation ;) Obviously,
there has also been some very valid points made in this newsgroup
regarding "deeded" timeshares...but I'll leave that
issue to someone else.
Rod <rod@uiowa.edu>
Hi Jose, Your points are well taken. However, I've been thinking
about all the replies to my initial note (what a wondrous thing
the internet is!) and it occurred to me that I might be thinking
about this the wrong way.
Bear with me as I think my way through this. Let's say I put
$15000 into a mutual fund or some type of investment that provides
a 6.5% annual interest rate (current 30 year treasury bond rate
is 6.7%). In addition, every year I invest $500 (the hypothetical
timeshare maintenance fee) to the fund. By the magic of compound
interest, in 50 years there will be about $530,000 in the fund,
of which 490,000 is interest income. This leaves an after tax
income of about $390,000. This would be the additional income
obtained from not buying a timeshare with a 50 year deed. Note
that this is probably an underestimate since the maintenance fee
is likely to increase over time.
Let's say that I also take a vacation every year for 50 years
and spend $2500/week on lodging ($350/ day should provide for
a pretty good resort). Let's also assume an average of 3.5% inflation
rate/year over 50 years (estimate from Dain Bosworth). This would
cost a total of $350,000.
By this analysis, even taking into account inflation and a realistic
interest rate, it is more economical to not buy a timeshare, invest
the money, and take pretty luxurious vacations every year.
DVClubber@aol.com (Brian Bennett)
To be much more accurate, consider the actual number of points
it "costs" to spend a week at OKWR. Even at the busiest
time of year (Christmas week) it would take less than 150 points
for a week in a studio (typical hotel-like) room. At an approximate
cost of $63 per point, you would need $9500 for the purchase.
Your maintenance fee is not too far off. That leaves us with an
annual value, at your 10% (which is much more accurate than the
wishful 15%) of $1450. Since the room currently retails for $244
per night (not including tax) at that time of year, you'd be able
to stay for only five nights (including tax).
When you calculate in the fact that after paying off your "capital
investment" you still have many years left on your lease,
you might understand the draw.
Furthermore, if you spend your 150 points during the un-busy
times of year, you can almost double the number of days you can
stay.
moby@essex1.com (Deb Grandon)
We bought into DVC in Feb. 1993 and have since purchased additional
points 4 separate times. In May we'll be there for the 13th time
since our 1st purchase.
Let's look at this a different way...there are lots of us out
here that are at WDW every year, many of us more than once a year.
For my family the question is never *if* we'll go to WDW, it's
when. That said, our next decision was always where to stay.
OKW has HUGE advantages for us, and I realize that this doesn't
hold true for everyone...we WANT condo accommodations for our
vacations...we DO spend time at the room. Lots of people are perfectly
happy comparing a room at a hotel to a 2 bedroom unit at OKW...it
makes no difference to them if they have 4 people in one room,
but it does for us. Even if just my husband & I are at DVC,
we generally still rent a 1 bedroom because of the kitchen &
laundry facilities.
A 2nd advantage to us, and the most important to me (and by reading
trip reports I believe LOTS of DVC'ers do this) is the ability
to *treat* others to the magic of Disney. My sister has now been
to WDW 3 times, only having to cover the cost of meals. If she
had to pay her own way she could never have gotten there...same
situation with my parents (who've now been there twice). We've
gone w/brother-in-law's family twice and my sister-in-law's family
once. It's easy to offer & have someone accept when we say
"come on along, we've got the room & tickets". I
realize that my reasons wouldn't convince anyone else to buy,
and that's fine.
I have found that almost ALL DVC'ers stress the point that the
plan isn't for everyone. And while most everyone else raves about
OKW, I'd be one to tell you that I think serious problems exist
w/quality of the staff and that I've had some units that were
looking pretty worn out, which I don't like. But, the plan works
for us, and so far we're still happy with our purchase.
Buying into the DVC was much more than an economic decision for
us. The same reasons would have held true had we purchased off-site.
We're committed to 50 years at Disney either way, DVC just makes
it easier! Hope this helps, & sorry to ramble!
dannell@primenet.com (Andy Dannelley)
I believe that to DVC or not to DVC is going to be one of those
things that there is going to be strong opinions on. Those of
us bought into DVC did so because we felt it *was/is* the best
thing for us. We enjoy the facilities, we enjoy WDW, we enjoy
the flexibility of DVC and we enjoy the forced vacation savings
plan to visit WDW. I see the DVC discussion much like the on-site/off-site
discussions. Those that like on-site are unconvinced of any advantages
to off-site accommodations, those who like off-site are unconvinced
as to the advantages of staying on-site. Some of us DVC members
take it a step further, not only do we want to stay on-site, we
want all the conveniences of home. Yeah, yeah, I know there are
cheaper timeshares in the Orlando area, but they are not Disney,
they are not *on-site* at WDW.
DVC membership is not as much a financial investment as a *fun*
investment. For me, not an investment to make money (or even save
money) but an investment for fun, to make sure that I take a vacation
frequently, and that I have a place to stay that I enjoy and can
afford. I wouldn't want to spend my vacation any other way. I
believe that this is the appeal of DVC, at least it is for me.
It is not an appeal to save or make money (everything doesn't
have to be financially profitable) it is a feeling, it is for
fun, DVC has the vacation features that make a vacation at WDW
enjoyable for me and my family.
We bought in 1994, and have not looked back sense, we only look
forward unitl the next time we see the welcome mat in the Hospitality
House Check-in. It says "Welcome Home". For me OKW is
like a second home. I hope I didn't ramble on too much, or bore
too many.
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