GoofGoof
Premium Member
Plus a 10% return on an investment is taxable so after tax it's only worth 7.5%.
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Are you going to buy points at the Polynesian Villas & Bungalows?
- Thread starter DVC Mike
- Start date
CaptainAmerica
Well-Known Member
If you have any savvy picking mutual funds, you should be able to get at least 10% per year long term. Yes, there will be ups and downs, but that's not an unreasonable average at all over the life of a DVC contract.
To your other point, when you buy most things you have immediate use of them. If I buy a luxury car I can use it starting on Day 1. The "invest the rest" is a valid comparison for DVC because your costs are frontloaded for a benefit that it'll take decades to realize.
ETA: And the "invest the rest" point is not about saving money for retirement or whatever. In my hypothetical scenario, you'd still use that money on Disney vacations.
CaptainAmerica
Well-Known Member
LTCG maxes out at 20% and only then if you're crazy rich.
You had mentioned "investing" money to use for your Disney resort stay. So for an "average" deluxe resort stay of $2500 - $3000 for a week, you would have to invest at least $30,000 and get that 10% return. Oops, sorry kids, we only got 6% this year, so we have to stay in a Moderate or a Value. For us, that is simply NOT acceptable. We have not and will not ever stay in a Value resort, and only in a Moderate if we had no other choice, but that would be a 3rd or even 4th trip in one year, not for a single trip. Oh, and that is another thing. Your investment pretty much allows only 1 deluxe trip per year. We go at least 2 and up to 4 times every year. To get 3 trips for us, we would then have to "invest" $90,000, and still get the 10% return in order to afford 3 deluxe resort trips, and we would still not be able to afford a 3 bedroom Grand Villa in any one year. But we can easily get 3 trips out of our points every year, and our dues are under $2,000/year.
When you buy your points, you have immediate use of them as well. We went on our first trip only 3 months after our purchase. The breakeven point at where you have saved enough on your resort costs to offset the initial investment is NOT decades (well, unless you'er OK with Moderates and Values - then DVC isn't for you anyway). We have already done that, so DVC is only costing us our dues each year. Granted, your breakeven point if you buy into VGF or Poly at $165/point will be longer - probably 15-18 years - but you then still have almost 35 years of dues only to save thousands every year. And the deed can be willed to your children for their use.
OK, so again, let's look at a real world example. Your kids are in school, so you have to go in the summer. You choose a week in July, and you want to stay at the GF every year. For the week of July 11 - July 18, your room cost for a lagoon view room this year will be approx. $3,153 without taxes. You claim you want to pay cash every year, and Disney for arguments sake, raises resort room prices every year for the next 30 years. To stay the same week on DVC points, you will need to buy 169 points. It will cost you a buy-in of $27,885 - there are no closing costs buying through Disney. Your dues first year will be $932.88. I'll break it down.
Again, assuming a 4% increase in both the rate of the resort room, and your DVC dues.
After 10 years, you will have spent $37,855 for your cash room. You will have spent $39,085 for your DVC buy-in and dues. You spent $1,230 MORE on DVC.
After 15 years, you will have spent $63,134 for your cash room. You will have spent $46,564 for your DVC buy-in and dues. You have now SAVED $16,569 with DVC.
After 18 years, you will have spent $80,859 for your cash room. You will have spent $51,908 for your DVC buy-in and dues. You have now SAVED $29,050 with DVC.
You have reached your breakeven point here.
After 20 years, you will have spent $93,890 for your cash room. You will have spent $55,664 for your DVC buy-in and dues. You have now SAVED $38,225 with DVC.
After 25 years, you will have spent $131,309 for your cash room. You will have spent $66,735 for your DVC buy-in and dues. You have now SAVED $66,735 with DVC.
After 30 years, you will have spent $176,835 for your cash room. You will have spent $77,296 for your DVC buy-in and dues. You have now SAVED $99,539 with DVC.
As a matter of fact, from year 20 to 25, and 25 to 30, you have saved more in each of those 5 years than your initial investment, and will continue to do so. I will never understand WHY you don't think this is a good deal for those of us that are only willing to stay deluxe, and visit WDW multiple times every year. I don't get it.
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CaptainAmerica
Well-Known Member
That's incorrect. Your model implies that you're only allowed to spend interest earned, but my model absolutely necessitates eating the principal (which makes sense since it's not like you have residual cash at the end of a DVC contract). If you only get 6% one year, you still stay deluxe, using $1,800 interest earned and $1,200 of your $30,000 principal. Now you have $28,800 invested. If the market recovers and does 14% the next year, you're back up to $32,832. Spending $3,000 on Year 2's vacation leaves you with $29,832 (roughly where you started). Since you're starting with $30K and planning on ending with zero, you have a long runway to "weather the storm" of bad years in the market.
Again, it's risk. We've agreed to disagree so I'm not eager to go down this road again, but @slappy magoo brought it up so here we are. I can't comprehend anyone who knows, with the amount of certainty that would be necessary to justify it, what their tastes (or the condition of the parks) will be like in 20, 25, or 30 years from now.
But you still only get to go once per year, but we go 2 to 4 times per year. Oh, and better hope that there isn't a crash that wipes out 50% or more of your money, and takes several years to recoup, as what happened to a LOT of people just a few short years ago. No vacations for them!
I know that we agree to disagree and that I will never change your mind, but wanted to put that out there for anyone else considering it.
Oh, and since I have been going there since 1978, yes, I can say with absolute certainty that as long as there is a WDW to go to, my wife and I will be going for the next 30 years.
CaptainAmerica
Well-Known Member
Maybe it's easier to look that far in the future when you're an old man.Oh, and since I have been going there since 1978, yes, I can say with absolute certainty that as long as there is a WDW to go to, my wife and I will be going for the next 30 years.
GoofGoof
Premium Member
But you will need to take money out of the account to pay for your cash room so you will be paying short term capital gains on some of the investment. You can't just assume the entire up front cost of DVC would be invested indefinitely unless you plan on not buying in to DVC and also not visiting WDW. In that case you will most definitely make out way better financially but what fun would that be
Even adjusting the interest rate on the break even model from 5% to 10% only extends the break even by a year or 2 depending on the inputs.
GoofGoof
Premium Member
But for $30K upfront you get enough DVC points for a lot more than 1 week a year (at least resale). If you just wanted to go a week a year in a studio you could buy in resale for more like $15K. You really have to compare apples to apples.
One last thing. DVC doesn't work for everyone and isn't right for everyone. I'm not trying to say that it is always the best answer and I don't think the others here are either. If you are consistently getting a 50% room discount for having a CM relative then it probably makes no sense for you. I personally don't know anyone who works at WDW so I don't get 50% discounts. Each person has to look at their own situation. The only reason I and some other posters here participate in these debates is for the education of others. I don't get commissions and I don't have any need to justify my decision to buy in to anyone else. I found some very helpful people online who pointed me in the right direction for finding info before I made the decision to buy into DVC. I'm paying it forward by helping people who are looking for info now. I ran through a bunch of math and crunched a bunch of numbers and built some spreadsheet models to run the calculations. I did my homework pretty thoroughly and considered a pretty large range of potential inputs to the model. I wouldn't drop $15K on something without thoroughly understanding what it is I'm buying into. I'm not trying to get anyone to buy in to DVC or not. I'm not really even sure direct purchases from Disney make economic sense at this point with prices the way they are.
We did our due diligence as well before buying. I have to agree that with current pricing, the breakeven point has become a bit ridiculous. We broke even at 6 years, and people buying into VGF or Poly are looking at 18 years to break even, buying direct. That's a bit much to me as well. All of our current points were bought direct, but back when the price, with incentives, was well under $90. We are looking to purchase more, but will probably stick to the resale market from now on. Unless there is some sort of super deal, buying direct doesn't work for us anymore.
Oh, and we are of the firm understanding that DVC is NOT for everyone. It works for us.
slappy magoo
Well-Known Member
Depending on who's manipulating the market, and how, that could be a pretty big "if," and a very tragic "if not..."