Is DVC a good buy?

Well first and foremost it depends on if you expect to vacation at Disney World on a regular basis. If you do then great DVC may be for you, if not then no need to go any further.

So the next step is to compare apples to apples. So I will compare a studio at VWL to a room at WL. Roughly the same space and the same resort experience.

A week at a studio in March is 132 points BUT you have to get a minimum of 150 points so I’ll base the DVC numbers a 150 point purchase. DVC will have maintenance of about $4 a point.

The room at WL cost $299 a night discounts may apply or not but I didn’t factor in room taxes and fees either so I see it as a push.

Inflation will increase the cost of the room and maintenance at 3% per year.

So for each there will be annual case flows. In the case of DVC is big the year you buy in. Renting a room increases every year.

These cash flows will be “discounted” back to Net Present Value. That is the amount of money it would take now to generate those future cash flows.

Say you need 100 bucks tomorrow you need $100 today, but you need $100 next year you need $90 some now and to earn some interest for a year. If you need $100 in ten years you earn interest on interest etc. you need less now. So a dollar today is worth more than one next year and even more than on in ten years.

These numbers are calculate-able and with a spreadsheet it isn’t all that hard. So once we have the cash flows we can calculate the amount of money it would take invested now to cover the two different sets of cash flows.

So let’s look at some cash flows: Here are the first few years so you get the idea - it goes on for 40 years.

Ok using an average investment rate over the years of 7.3 (or in our example 4.3 real return over the rate of inflation rate of 3) The Net present value is $22,980 for DVC and $39,200 for the hotel. DVC saves $16,220 in net present dollars or 40%

Ok that isn’t all that realistic, say you get sick of Disney and want out? Fine let’s say you have kids expect to go for ten years and then when they are grown do something else. (Now in my case that would be go to Disney without the kids but hey we are making assumptions here.) You have DVC on one side and hotels on the other. Well in ten years your DVC has some life left in it. It is going to be worth something but what?

We need to do some more assuming. (Yes I know how to spell assume, one of the few worked I do know how to spell.) Disney seems to be cranking out and selling DVC resorts. The prices are going up but  the life of the contract ends and the new ones have a longer life. So lets say the price of a point goes up with inflation buy after ten years you contract is only got 30 year left and the new ones have 50 so you are only 3/5 the value. Simple but fair enough OK. Here goes, annual inflation will take the 12,600 investment to 16,440 but don’t get excited you only get back 3/5 of that or 9864 and we are going to discount that back to present dollars and for fun we say you sell it in year 11 after the year 10 trip.

Here are then new cash flow assumptions: (This table updated based on reader comments)

The Net Present Values are DVC $11,882 and Hotel $16,340 DVC is $4,458 less in net present dollars.

The DVC contract will have extra points 150 vs 132 used. These are assumed of no value in the deal but with good point management could get some extra trips that make DVC a better value.

Another Study for Storm Along Bay fans with 4 kids.

OK that was low end DVC. Say you have 4 kids and like Storm Along Bay. You can join DVC get 2 bdrm BCV or get two rooms at the Beach Club (occupancy limit of room is 4 you need 2) Same as above on a ten year and out assumption.

NPV of DVC = 27,400    NPV of Beach Club = 43,050   DVC NPV advantage = 15,660

Run it out 40 years to the end of the DVC contract.

NPV of DVC = 53,616    NPV of Beach Club = 103,295   DVC NPV advantage = 49,678

OK some more caveats before we end. 7.3 investment and 3% inflation may note be the best numbers. I picked them because the seemed like good historic averages. The lower the investment rate the better DVC does in the comparison.

Financing and tax implications can be factored in for fun by someone else. I don’t think it changes the base assumptions.

Your mileage may vary.

This analysis has been a service of your benevolent evil emperor, Zurg.

Maistre Gracey writes:

Well, I thought I was following everything okay, untill.... "The Net Present Values are DVC $11,882" I am a little confused where this number came from. I am also confused where you factored in the 7.3% lost interest.

Thanx for putting this together...

The Emperor responds:

Well I as too lazy to do the NPV calculations by hand so I can't "show my work." like in a blue book back in school.

So here is the formula for discounting a number back to the NPV.

1/(1+R)^N where R = Rate and N= number of years. This give you a factor that you multiply the future amount by to the the NPV.

So at 7.3% for 3 years the factor is 1/(1.073)^3 .. 1/1.235376017 = 0.809470142

You calculate (or the computer calculates) this factor for each year. Than you multiply the factor times that years cash flow to get that years contribution to the NPV. Next you add up each years contribution and you get the total of all cash flows.

- or-

you use the NPV() function in Excel and it does all the calculations for you.

Guess what method I use?

But so you can see it I added the factors and to the first ten year table so you can see them. I am a Prince of an Evil emperor aren't I?