Math-heavy DVC vs. rental comparison

[Perloo]

Would love to get some other eyeballs on this. Have been considering DVC for awhile and doing some math on direct at RR. Understand the resale restrictions, and understand there are much cheaper ways to get in on the resale market. Can tweak the math accordingly if we end up going resale, but figured I'd start here for my analysis. Wouldn't do anything for a couple months to see what happens post-corona.

Comparing two scenarios: either 1) buying DVC, even though we don't go as frequently as many on these boards, and renting out points whenever we can't effectively bank them, vs. 2) renting points through a broker every time we do go. In both scenarios, the frequency and point cost of our visits is the same. I then take the dollars spent in each scenario and assume that, instead of spending them on Disney, I invest them, in order to see which option is "costing" me the most in potential investment gains. (No, I would probably not have the discipline to do this in real life, but I wanted to compare apples-to-apples.)

Scenario 1: Buying 175 points @ $195pp, $5 closing, $8 MF, with MF inflating 3%/yr. Renting unused points @ $14.50pp, also inflating 3%/yr.
Scenario 2: Renting @ $20pp, inflating 3%/yr.
In both scenarios, any invested dollars appreciate 5%/yr. Obviously this analysis is not sensitized for a coronavirus-impacted 2020.

What is surprising to me is that I have found DVC to be more cost-effective in all the different cases I'm running - varying the frequency and timing of trips - including when I drastically reduce the # of visits over a 50yr period (like, even getting down to 3 or 4 visits across all 50 years). And I realized that, given my assumptions, I start with a $6.50 spread between renting unused points and the MF, both inflating at the same rate. That, plus just a couple trips where I'm renting points @ $70 or $80pp in the last 10 years of the analysis, turns DVC into a winner.

So, very curious for feedback:
1. Is there something off in my analyis logic?
2. Is there something materially off in my assumptions?

Ultimately, I'm surprised that DVC can appear to still be cost-effective vs. just renting points when I only project 3-4 trips over a 50yr period.

 

[ELMC]

Would love to get some other eyeballs on this. Have been considering DVC for awhile and doing some math on direct at RR. Understand the resale restrictions, and understand there are much cheaper ways to get in on the resale market. Can tweak the math accordingly if we end up going resale, but figured I'd start here for my analysis. Wouldn't do anything for a couple months to see what happens post-corona.

Comparing two scenarios: either 1) buying DVC, even though we don't go as frequently as many on these boards, and renting out points whenever we can't effectively bank them, vs. 2) renting points through a broker every time we do go. In both scenarios, the frequency and point cost of our visits is the same. I then take the dollars spent in each scenario and assume that, instead of spending them on Disney, I invest them, in order to see which option is "costing" me the most in potential investment gains. (No, I would probably not have the discipline to do this in real life, but I wanted to compare apples-to-apples.)

Scenario 1: Buying 175 points @ $195pp, $5 closing, $8 MF, with MF inflating 3%/yr. Renting unused points @ $14.50pp, also inflating 3%/yr.
Scenario 2: Renting @ $20pp, inflating 3%/yr.
In both scenarios, any invested dollars appreciate 5%/yr. Obviously this analysis is not sensitized for a coronavirus-impacted 2020.

What is surprising to me is that I have found DVC to be more cost-effective in all the different cases I'm running - varying the frequency and timing of trips - including when I drastically reduce the # of visits over a 50yr period (like, even getting down to 3 or 4 visits across all 50 years). And I realized that, given my assumptions, I start with a $6.50 spread between renting unused points and the MF, both inflating at the same rate. That, plus just a couple trips where I'm renting points @ $70 or $80pp in the last 10 years of the analysis, turns DVC into a winner.

So, very curious for feedback:
1. Is there something off in my analyis logic?
2. Is there something materially off in my assumptions?

Ultimately, I'm surprised that DVC can appear to still be cost-effective vs. just renting points when I only project 3-4 trips over a 50yr period.

I don't think there's anything terribly off with your analysis or your logic, and it seems quite similar to the analyses that have been discussed here in the past. As with any analysis, the results can vary along with the assumptions. In your case, I think that your rental numbers are off in that you could easily rent out Riviera points for a minimum of $15.50. I'm guessing this will change your numbers fairly significantly. I will say that I agree that the analysis shows that purchasing is a better deal over the life of the contract. However, I'm curious how many years go by before the balance shifts in favor of owning instead of renting. My guess is that it's somewhere around year 20. Personally I'm not comfortable predicting that far out into the future and as such would be hesitant to do anything at a loss for 20 years because my projections show that I could start benefitting in year 21. To be fair, you could also run the numbers assuming you would sell the contract at the end of the year. My guess is that would pull the breakeven number much closer in.

The problem I have with the DVC market in general is that the entire thing has become overinflated. When I entered in 2012 Boardwalk was around $60 per point and rental rates were $10-11. Now Boardwalk is close to $130 resale and over $200 direct. Rental rates are anywhere between $16-21. It's gotten really expensive. Of course, so have hotel rooms, but I have the same issue there. Since when is the new normal $600 a night for a room at the Boardwalk?

I think we are due for a correction in both CRO prices and DVC prices. I think anyone buying today is buying at the height of the market and should temper their expectations. I've been saying that for years, I'm bound to be right one of these days.

 

[Sandisw]

I will be honest, I would not buy DVC with the intention of being able to rent your points,

Given the current struggles happening in the rental market, I am not convinced it won’t become a different ballgame going forward.

I would buy what you need to comfortable stays in all but premium season, where you are comfortable staying if you can’t trade out, and consider any resale value a bonus.

I am not one who ran numbers with lost investment money or resale value, though. I just looked at cash rates, with a 35% discount which was better easy to get when I bought, vs owning DVC. If I could get my typical vacation For no more than what I was spending on rooms, it would be a good deal.

Granted, it started that way, but now up to over 800 points so not saving a thing..but I get to go about 6 times a year now!

 

[CarolMN]

It's good that you are planning to will wait a few months before doing anything. It may take even longer than that to see where things shake out as far as prices and the rental market.

IMO, the future demand for rentals is likely to be very depressed for quite some time, and the prices owners can command for rentals will significantly decrease. By the time people are able to travel freely again, a good share of them will not be able to afford Disney vacations. Many of those who can will have a bad taste in their mouth from their recent losses - even though their reservations were "non-refundable", they expected to get their money back when the resorts closed. A lot of them didn't or won't. It's a good bet that Disney will offer significant discounts to attract visitors when our lives return to something more normal. So current rental prices will need to decrease also. I expect many of the brokers to be out of business as a result of COVID-19 and all the closures..

My point is that depending on rentals to subsidize your purchase is a very risky proposition right now - more so than it may have been considered up to now. Buy what you can use yourself or at least what you can comfortably pay for if you can't rent.

Good luck!

 

[TraderSamWDW]

Two things I note

1. As mentioned, you may not be able to rent your points out all the time. (tips the scales to renting as opposed to buying)
2. With renting points, you are putting yourself behind the 8 ball some. Its not like cash room where you can cancel 5 days out and get all your money back. You often have to rent months - even up to 11 out - and if you have to cancel, you could be out every penny. (tips the scales towards buying over renting)

ETA
3. Being an owner is more flexible, wait lists, piecing together reservations, etc. Hard to quantify that, but it is of some value.

 

[Sandisw]

Two things I note

1. As mentioned, you may not be able to rent your points out all the time. (tips the scales to renting as opposed to buying)
2. With renting points, you are putting yourself behind the 8 ball some. Its not like cash room where you can cancel 5 days out and get all your money back. You often have to rent months - even up to 11 out - and if you have to cancel, you could be out every penny. (tips the scales towards buying over renting)

ETA
3. Being an owner is more flexible, wait lists, piecing together reservations, etc. Hard to quantify that, but it is of some value.

Not only out for canceling a rental, but being out that money even if the resort is closed and you are prohibited from going,

I honestly don’t believe many people, owners and renters alike, even thought about this situation when making sure everyone was aware what non refundable meant,

I certainly didn’t and Always believed that resort closure was an automatic refund or rescheduling regardless.

 

[MICKIMINI]

This is the wild, wild west right now and honestly, not the time to speculate IMHO. It is the time if you are a newbie, to delve into studying this great resource at disboards and watch the videos and read the threads. There will be some deals appearing in the next couple months in the secondary market but you won't know it is a deal unless you thoroughly study this like you are learning a new subject!

We originally bought in 1996 and have bought and sold through the years (for a profit). Two years ago I picked up two contracts for a deal and resold them for a hefty profit last year. I then bought two more contracts last year, loaded to the hilt with points and promptly rented them out which did offset the purchase price and gave us a many points for our own use. Now that being said, I've been a part of this world for 25 years and still don't know everything, but I do know that the market goes mostly up but sometimes (like now) goes down. There is also unprecedented speculation right now with the rental market. I would not jump in and try to replicate what I did last year, in fact if it was this year I would not have the offset from rentals.

Bottom Line: Study, zero in on what you want for personal use, buy where you want to stay and buy on the secondary market. There will be lots of contracts available always and owning several small contracts is much safer than owning one big one. As I have said before - patience.

 

[Perloo]

However, I'm curious how many years go by before the balance shifts in favor of owning instead of renting. My guess is that it's somewhere around year 20.

Actually, it was precisely around Year 20 in most of my scenarios. Now, just to clarify, I am not purchasing with the intent of renting. I am purchasing with the fear that I won't use the points enough, and so what is my backstop?

Appreciate the general guidance that the rental market has ups and downs. Personally, I would just rent through a broker and give up a little margin, I know I will not take the time to comb the boards and go back-and-forth with a number of potential renters. That said, I'm curious, in previous down rental markets, if I went through a reputable broker, is it likely to not even be able to find takers? Or just that I will be getting much less than the $14.50 I've modeled in?

ETA
3. Being an owner is more flexible, wait lists, piecing together reservations, etc. Hard to quantify that, but it is of some value.

Can you clarify this one for me? You're saying, if I rent I get locked into a reservation, but if I own then I can move things around as travel plans change, generally without penalty? (With the caveat of banking deadlines, etc.) Just want to make sure I understand your point here. (For me, the idea of piecing together reservations or doing the day-by-day reservation walk seems incredibly annoying, though I understand others may find great joy in that.)

There will be lots of contracts available always and owning several small contracts is much safer than owning one big one.

Again, can you clarify for my sake? I am not worried about resale value, going into this assuming residual is zero (and anything above that is a bonus). Is your comment geared towards financial value, or just to accommodate changing lifestyle / travel habits / preferences? And even so, with a bunch of small contracts, doesn't that hamper flexibility in that, at the 11mo mark, I'd be fighting for studios with everyone else? In our specific circumstances, we will look for a 1BR or 2BR.

 

[MICKIMINI]

Sure, to clarify, you can buy several small contracts for the same resort with the same UY thus it will act like one big contract. You can book your "home" at 11 months online and the website displays each contract and allows you to choose which contract you want to "draw" from. Even though you aren't looking at selling, there is a comfort in knowing those small contracts can be flipped quickly for premium prices though prices will soften and demand will slow for the short term. In two instances, I have been able to buy a "bundle" of two contracts together from the same owner with one closing cost. I always look for loaded contracts.

DVC has been a way of life for us, our son was 8 when we bought and is now 32. DH and I gift him and his wife for long weekends and meet them at WDW for vacations. Over the years it has consistently been one of the best choices we personally, have made.

 

[TraderSamWDW]

Can you clarify this one for me? You're saying, if I rent I get locked into a reservation, but if I own then I can move things around as travel plans change, generally without penalty? (With the caveat of banking deadlines, etc.) Just want to make sure I understand your point here. (For me, the idea of piecing together reservations or doing the day-by-day reservation walk seems incredibly annoying, though I understand others may find great joy in that.)

Basically yes. While I would not call stalking the web site a joy by any means, let alone a great joy, it is an option. particularly trips booked on shorter notice or perhaps to switch from one resort to another.
Example, say you want to go for a week and stay at Resort A. No one has points to rent so you take resort B. That is it, its set. I have never rented, so I dont know if a waitlist is possible, but it seems unlikely, others can chime in there)

If they are your points, you can at least take a look periodically to see if resort A opened up, or perhaps do a split stay. You do have more flexibility. It is a benefit that was not included in your comparison, and one that admittedly is hard to put a value on.

 

[Sandisw]

Actually, it was precisely around Year 20 in most of my scenarios. Now, just to clarify, I am not purchasing with the intent of renting. I am purchasing with the fear that I won't use the points enough, and so what is my backstop?

Appreciate the general guidance that the rental market has ups and downs. Personally, I would just rent through a broker and give up a little margin, I know I will not take the time to comb the boards and go back-and-forth with a number of potential renters. That said, I'm curious, in previous down rental markets, if I went through a reputable broker, is it likely to not even be able to find takers? Or just that I will be getting much less than the $14.50 I've modeled in?



Can you clarify this one for me? You're saying, if I rent I get locked into a reservation, but if I own then I can move things around as travel plans change, generally without penalty? (With the caveat of banking deadlines, etc.) Just want to make sure I understand your point here. (For me, the idea of piecing together reservations or doing the day-by-day reservation walk seems incredibly annoying, though I understand others may find great joy in that.)


Again, can you clarify for my sake? I am not worried about resale value, going into this assuming residual is zero (and anything above that is a bonus). Is your comment geared towards financial value, or just to accommodate changing lifestyle / travel habits / preferences? And even so, with a bunch of small contracts, doesn't that hamper flexibility in that, at the 11mo mark, I'd be fighting for studios with everyone else? In our specific circumstances, we will look for a 1BR or 2BR.

As a renter, the issue is that whatever you pay could be lost if something happens. If the resort closes, like now, most feel that does not override the non refundable aspect of. Rental contract,
Once you choose dates, you are pretty much locked in because owners won’t be changing them.

Its a big risk. As an owner, you can make a reservations at 11 months, make changes when you want. if you want you stay at a different resort, as an owner, you can put in a waitlist if it’s not available,

To be honest, I can’t really recommend renting anymore, unless the prices come way way down,

 

[ELMC]

Actually, it was precisely around Year 20 in most of my scenarios. Now, just to clarify, I am not purchasing with the intent of renting. I am purchasing with the fear that I won't use the points enough, and so what is my backstop?

Appreciate the general guidance that the rental market has ups and downs. Personally, I would just rent through a broker and give up a little margin, I know I will not take the time to comb the boards and go back-and-forth with a number of potential renters. That said, I'm curious, in previous down rental markets, if I went through a reputable broker, is it likely to not even be able to find takers? Or just that I will be getting much less than the $14.50 I've modeled in?

Right now if you go through a broker then you would get $15.50 a point, slightly more if you rented out the points yourself. As others pointed out this could change due to the economy, but if that happens then rental prices would also likely come down. So my point is that it is important to start with the right delta, even if it turns out to be off by a dollar or so.

As a renter, the issue is that whatever you pay could be lost if something happens. If the resort closes, like now, most feel that does not override the non refundable aspect of. Rental contract,
Once you choose dates, you are pretty much locked in because owners won’t be changing them.

Its a big risk. As an owner, you can make a reservations at 11 months, make changes when you want. if you want you stay at a different resort, as an owner, you can put in a waitlist if it’s not available,

To be honest, I can’t really recommend renting anymore, unless the prices come way way down,

I'm starting to come around to this line of thinking as well. I've already felt that way about owning, now I'm starting to feel that way about renting as well. $21 per point from brokers for "premium" resorts is insane (and yet still better than CRO prices).

The DVC is too damn high! -Jimmy McMillin

 

[Sandisw]

Right now if you go through a broker then you would get $15.50 a point, slightly more if you rented out the points yourself. As others pointed out this could change due to the economy, but if that happens then rental prices would also likely come down. So my point is that it is important to start with the right delta, even if it turns out to be off by a dollar or so.


I'm starting to come around to this line of thinking as well. I've already felt that way about owning, now I'm starting to feel that way about renting as well. $21 per point from brokers for "premium" resorts is insane (and yet still better than CRO prices).

The DVC is too damn high! -Jimmy McMillin

I wonder if you take the cost of Cancel for Any Reason insurance and add it to the price of the rental, it is really that much of a savings?

 

[ELMC]

I wonder if you take the cost of Cancel for Any Reason insurance and add it to the price of the rental, it is really that much of a savings?

Probably not. My rental vs. purchasing analyses are made using rental prices found here on the DIS and not the higher broker rates (with expensive options that you mention here). I think there is more built-in flexibility when dealing directly with an owner, thus eliminating the need for this option. Once you factor in the higher costs associated with using a broker, I'm not so sure I see renting or owning as a viable option.

 

[Yinn]

I did my analysis using broker rentals and it made it a no brainer. I went way overboard and evaluated a number of scenarios, there were some that were better deals than others but overall it just made sense. With just one exception, I wouldn't buy DVC as an investment. It wasn't good enough to try to make money consistently on, but it was a good way to save money if you're going to go anyway.

So to oversimplify it, the cost to rent 150 points for one year is $2850 through a broker. It's not unreasonable to be able to buy 150 points right now for $12,000. Obviously higher or lower depending on the resort. That means you break even on trip 4 and gain on trip 5.

But what about annual dues? They're irrelevant because if you only took 5 trips, even on a 2042 resort that's 15 years you'd be able to rent out. Even if the rental market implodes, you have to ask if it would get to the point where rental points cost less than annual dues. Imagine renting your points out for $8/pt? Getting a 1 BR for a week at AKV for $800? Or a studio for a week at Boardwalk for $800? You'd get a waitlist for the rest of your use years the second people realized it.

And that is the reality. DVC prices will always be supported by Disney's own resort pricing. We will have an upper limit based on what Disney is charging, and a lower limit based on the discount compared to what they're charging.

 

[ldo]

I bought (years ago) because I wanted to control my reservation. Originally, I bought enough for EOY travel to make sure we'd use all of our points. We banked and borrowed, stayed 5 nights and hotel a few nights, and sometimes stayed in 1BR instead of 2 BR or did free dining if we went more than EOY.

 

[MICKIMINI]

An owner who rents OKW studio for one night at 10 points nets $38

$14.50 broker pays you per point
7.80 dues pp +/-
2.90 income tax (@ 20% on $14.50)*
___________
$ 3.80 net per point ($90 +/- pp to purchase today)

*varies depending on tax rate/calculated using standard deduction

If rental paid to owners drop, the pool of owners will drop dramatically, especially with the uncertainty of the broker contracts due to current crisis. We'll be staying in bigger accommodations/staying longer to absorb points rather then renting in the future.

This is the reality of what you net from renting points...not a windfall and most owners get rid of points this way and use a broker for "protection" - whatever that means these days. Buying to rent isn't a great deal. Buying to own is...in my opinion (first contract bought in 1996 - most recent 2019 - many in between).

I suppose there are other ways to calculate this so this is my personal opinion and not means to apply to every owner.

 

[Yinn]

This is the reality of what you net from renting points...not a windfall and most owners get rid of points this way and use a broker for "protection" - whatever that means these days.

Just remember, "protection" isn't 100% effective, and it can certainly vary depending on the type of "protection" used. When used appropriately, it can be really effective. Unfortunately the reality is that the real life effectiveness rate is far lower than the anticipated protection rate...wait...are we still talking about point brokers?

 

[Miffy]

OP, You seem set on buying no matter what anyone here says, but, just a suggestion: take a long, hard read of the thread where owners and renters alike are really upset about what's going on right now.

 

[ELMC]

DVC prices will always be supported by Disney's own resort pricing. We will have an upper limit based on what Disney is charging, and a lower limit based on the discount compared to what they're charging.

I agree with this completely. However, I interpret it differently. If the economy continues to spiral down the toilet then room rate discounts are going to be plentiful and long-lasting. This will greatly impact the break-even analyses that we have all performed, especially if the discounts come in the first few years of ownership. The game remains the same but it's being played in a completely different venue. We need to start changing our thinking when it comes to our analysis of the value of DVC.