Why do people regularly use rack rate for break even?

[Pooh12863]

I’m tracking our trips since purchasing in May and am comparing our total out of pocket costs to pay cash vs. whatever the current discount for the same room and same dates would be.

I’m curious why most people always seem to say they compare rack rate…(including the numerous and unashamed DVC podcast that exist as nothing more than advertisements for resale)?

No one in their right mind pays rack rate so my assumption is it helps people mentally justify their purchase by “breaking even” quicker.
Even using a basic 20% discount vs rack rate seems more logical.

To each their own, but the podcasts and “trusted” agents seem to be completely misleading people into when you can break even. Granted buyer beware and do your research but I’m curious for thoughts from others.

"Break even" is just an arbitrary number that really means nothing as long as the underlying asset is worth what you paid or more.

 

[JulieBeeRN]

Its not really worth calculating. Long term, maintenance fees are the primary cost. Buy in is just a smaller piece of the pie.

Without knowing what the rate hike will be, it is next to impossible to guess what the long term costs will be.
Even when you factor in precise inflation rates etc, the fee bump does not always follow that trend.

For example. If you bought a 200 point contract at Animal Kingdom today for $125 per point, and held it until 2057, the buy in would be $25000 without closing costs .

Long term cost per year will vary from $4450 ($1620 in todays dollars) per year to $6350 ($2325 in todays dollars) per year depending on if the maintenance fees stay at a 4% increase per year average, or creep up to 6% increase per year average.

Long term total cost at 4% average fee increase per year is $155712 ($57000 in todays dollars). Long term total cost at 6% average fee increase per year is $222285 ($81370 in todays dollars).

We bought because we love 1 bedrooms and love the location (we stay primarily at VGC). It is true that we stay in much nicer accomodations, but we still spend more now that we would if we hadn't bought into DVC. It is still worth every penny.

Agree

We love staying in the 1 bedrooms that we wouldn't normally have access to with the DVC.

 

[BamaGuy44]

Never even tried to calculate my break even. A bunch of assumptions have to be made that may or may not be true 15+ years down the line. I like the experience of owning points and booking with them more than renting or booking cash stays, so if the math is in the same ballpark for the deluxe resorts, owning is the right choice for me.

I'm very analytical with most of my finances. But frivolous luxury items bought with discretionary funds, not as much.

That said I don't think it's "wrong" to use rack rate for their own calculations, there aren't always discounts when someone wants to go. But I agree with you sales people using rack rate is a form of "fuzzy math" that is borderline deceptive. Along with not including dues or underestimating their increases.

On the other side, people who want to say DVC is not a good deal, seem to always conveniently forget with points you can most likely (not guaranteed) get a large chunk of the money you've put in back out 10 or 20 years down the road. Asking for a large percentage of the money you've sunk into cash stays or renting points 15 years later will be an awkward conversation.

 

[TeamRiley]

And you never can tell what the market will do.

If I added up our initial buy in, all the maintenance fees over the many years, the cost of flights, food, park tickets, special event/dining costs etc., I could sell all my VCG points, pay off all those costs, and still have money left over. Other resorts haven't seen that kind of demand pushing the resale price so high, so you never can tell.

 

[ehh]

As someone who tracks:

• Rack rate
• Best public discount rate (Disney+ sub counts as public, IMO)
• AP discount rate

For 14 room types ranging from Pop Century to Bungalow + the Same Room As Booked for every single stay, I gotta say I'm often underwhelmed with the discounts. Discounts of 25-35% often get the headlines, but they're not universal and often fill gaps that don't make sense for us.

For Same Room As Booked, the average public discount offered/published is just 4.8%. Average AP Discount is 6.8%. And this is before considering whether there's any available inventory to book, I record the discounted rate even if it's offered but 'sold out' (or never actually available). Apparently I travel in rooms that aren't included in discounts or at non-discount times of year.

The best discounted room I've tracked over the years is Yacht Club Garden/Resort View room, with 9.2% average public discount and 14.6% average AP discount. Again, this is before actual availability, just what is offered/published.

As for breakeven, I kinda use them all? It's fun to think how much $$$ we'd have spent staying in nothing but Bungalows ($860k) and good perspective to have that we'd have spent just $51k stay at Pop on AP discount, much less than we've put into DVC.

 

[laurend]

We went the other way. BCV resale then added on direct at VGF! Now I wonder if we got enough at VGF…

Welp our offer got accepted, so we'll be joining the dual BCV/VGF ranks as long as the ROFR monster spares us!

 

[DonMacGregor]

As someone who tracks:

• Rack rate
• Best public discount rate (Disney+ sub counts as public, IMO)
• AP discount rate

For 14 room types ranging from Pop Century to Bungalow + the Same Room As Booked for every single stay, I gotta say I'm often underwhelmed with the discounts. Discounts of 25-35% often get the headlines, but they're not universal and often fill gaps that don't make sense for us.

For Same Room As Booked, the average public discount offered/published is just 4.8%. Average AP Discount is 6.8%. And this is before considering whether there's any available inventory to book, I record the discounted rate even if it's offered but 'sold out' (or never actually available). Apparently I travel in rooms that aren't included in discounts or at non-discount times of year.

The best discounted room I've tracked over the years is Yacht Club Garden/Resort View room, with 9.2% average public discount and 14.6% average AP discount. Again, this is before actual availability, just what is offered/published.

As for breakeven, I kinda use them all? It's fun to think how much $$$ we'd have spent staying in nothing but Bungalows ($860k) and good perspective to have that we'd have spent just $51k stay at Pop on AP discount, much less than we've put into DVC.

Does that analysis include the taxes and resort fees you need to pump back into those cash rates as well? I have never spent any real time doing any cost comparison, but I would imagine that 10%—15% “discount” off rack rate would get eaten up pretty quickly when you add in taxes and fees (when comparing to points plus dues). Add in $35 per night for parking too if you’re looking at DLR hotel rates.

 

[ehh]

Does that analysis include the taxes and resort fees you need to pump back into those cash rates as well? I have never spent any real time doing any cost comparison, but I would imagine that 10%—15% “discount” off rack rate would get eaten up pretty quickly when you add in taxes and fees (when comparing to points plus dues). Add in $35 per night for parking too if you’re looking at DLR hotel rates.

It does include all relevant taxes, on both sides (Aulani and VDH TOT on the DVC side). Ultimately the taxes don't eat into the discounts as the full rack rate I record also includes tax, so the discounts are on tax, too.

I haven't included parking, honestly never even occurred to me.

 

[keishashadow]

Well, there are times of the year when there are no discounts and people do indeed pay rack rate

we started to book spontaneous trips as we wound down to retirement. Difficult to resist when flight prices are cheap & AP in hand.

Something that doesn’t necessarily work is utilizing DVC as to # of points on hand & what inventory is open.

if we can’t find a deal at DS or WBC, only other option is rack at the values. Tend to be an omen we will be up to our elbows in cheerleaders, twirlers, etc. we just laugh and have a great time, full circle, brings us back to our roots pre DVC.

 

[sethschroeder]

Even using a basic 20% discount vs rack rate seems more logical.

So do you go in then and go through the historical of price increases on hotel rates, likelihood of certain discount amounts and then come out with a predictive future model for year 5 or 10 or 15?

Point is rack rate today is likely the 20% discount price in 5 years anyways. So if the break even is 10 years using rack rate likely comes out fairly close.

June 1st, 2018 at Boardwalk Studio - $474
June 1st, 2023 at Boardwalk Studio - $656
38% increase going through a pandemic where they were shutdown for a few months

If you figured your breakeven off the 2018 rack rate 20% discount than your math would be wildly off.

 

[sethschroeder]

I have argued that any sort of savings calculations should be done only for fun.

Why buy DVC then? I might as well just go rent DVC or go to Disney getting a cash room.

The whole point is saving money. If I can't do that then DVC has no value because it also has more restrictions.

 

[Robbie Cottam]

Why buy DVC then? I might as well just go rent DVC or go to Disney getting a cash room.

The whole point is saving money. If I can't do that then DVC has no value because it also has more restrictions.

With that logic,
I will gladly rent you 10 years worth of DVC points,
You will pay for the contract for me, and I'll spend 40 years just paying dues......

 

[crisi]

Why buy DVC then? I might as well just go rent DVC or go to Disney getting a cash room.

The whole point is saving money. If I can't do that then DVC has no value because it also has more restrictions.

Honestly, renting is great if you can take the (small) risk. DVC works if you want the additional value - the ability to book larger rooms cost effectively on site. The ability to take family with "reasonable" costs. The cost "savings" only work if you are disciplined about 1) only staying in studios AND 2) you were planning on taking every single vacation you end up taking with DVC at WDW in Deluxe and Moderate hotel rooms. (There are some other financial things, like salvage value - if you buy and hold and sell at a gain, its a great deal - if you buy direct with a loan and sell at a loss shortly after buying due to, oh, say the economic recession of 2008, its a bad deal). I admit that there are a few people here who do exactly that and have "saved" money - but I don't think that's most of us. DVC tends to change the way you travel (thus addonitis) - and acknowledging that to people trying to make a purchase decision is the ethical thing to do. (They'll likely think they are the disciplined ones and buy anyway, but at least its been said).

I suppose the savings also work if you were planning on booking a DVC 2 bedroom unit every trip through CRO - and now book that two bedroom unit through DVC - but I've really never heard of someone who regularly books bigger units through CRO - I'm sure that person is out there though - maybe that was you. In which case, you are saving a ton.

It doesn't work if you don't need that value and/or don't have that discipline - if you are happy with the Swolphin or offsite. If you are a bargain hunter that books Pop for Free Dining and doesn't go if you don't get that. If you are able to spend hotel points for your stay offsite. If your travel is more diverse and not on a schedule (although renting can help with that). Or if "hey we have points" means scrapping the studio, going the addonitis route, and treating your family to rooms. Or going when you would have done a staycation due to tight finances.

DVC for us was NOT about saving money. It was about staying in bigger rooms. Had we not owned DVC, we'd have been four in a hotel room - until we moved offsite to a VBRO rental when the kids got too big. And doing so would have SAVED us money over owning DVC. But, had we done that, we would have also "outgrown" Disney a lot earlier.

 

[mort1331]

I have not seen any of these analysis that also include, What I can sell for after I have used it.
They all are assuming going the life of the contract. But we know stats tell us average is 10 years.
Well in my 12 years of owning,,,,I can sell at a profit. So even using all the cost including time,,,my net is close to 0.
If I was to pay 40% off rack rate I would be still in the hole.
Now I dont plan on selling,,,but residual vaule is still a X vaule that should be taken into consideration.

 

[crisi]

I have not seen any of these analysis that also include, What I can sell for after I have used it.
They all are assuming going the life of the contract. But we know stats tell us average is 10 years.
Well in my 12 years of owning,,,,I can sell at a profit. So even using all the cost including time,,,my net is close to 0.
If I was to pay 40% off rack rate I would be still in the hole.
Now I dont plan on selling,,,but residual vaule is still a X vaule that should be taken into consideration.

That's salvage value - the problem being that while MOST of us have done well and could sell today at a profit (less of a profit if you factor time value of money, but still, more in absolute dollars than we paid for it), there are a lot of people who have taken a loss - particularly people who bought, financed, and then were forced to sell due to financial circumstances. That's the reason it seldom appears in analysis - because its really hard to factor in - until you do sell. Factoring it in requires knowing what you paid for it, what you sold it for, and the inflation rate of the dollar during the time you held it. That's going to vary for each buyer - as well as, as said, really being something you don't know until you do sell.

Its also one of the things people use to justify the purchase when they can't afford it...."I could sell it in two years for more than I bought it for" - and yes, there have been times when you've been able to do just that. And times when people have lost their shirts. Before 2008, when the resale market was insane and their was no way to go but up, that logic appeared in a lot more analysis. Then people lost more than DVC and most of the board started to downplay DVC holding or increasing in value.

 

[mort1331]

That's salvage value - the problem being that while MOST of us have done well and could sell today at a profit (less of a profit if you factor time value of money, but still, more in absolute dollars than we paid for it), there are a lot of people who have taken a loss - particularly people who bought, financed, and then were forced to sell due to financial circumstances. That's the reason it seldom appears in analysis - because its really hard to factor in - until you do sell. Factoring it in requires knowing what you paid for it, what you sold it for, and the inflation rate of the dollar during the time you held it. That's going to vary for each buyer - as well as, as said, really being something you don't know until you do sell.

Its also one of the things people use to justify the purchase when they can't afford it...."I could sell it in two years for more than I bought it for" - and yes, there have been times when you've been able to do just that. And times when people have lost their shirts. Before 2008, when the resale market was insane and their was no way to go but up, that logic appeared in a lot more analysis. Then people lost more than DVC and most of the board started to downplay DVC holding or increasing in value.

I understand your points. My only point is if your taking time value, plus guessing on inflation rates on a break even, then I think you should also add in how long your hold in that position is and what your sell value is. If you plan to hold till the bitter end, then we know the value is 0. But if not holding till the end,,well there will be some salvage value which should also be factored in.
And like all these variables,,,its a crap shoot for trying to find that value.

 

[Brian Noble]

Why buy DVC then? I might as well just go rent DVC or go to Disney getting a cash room.

The whole point is saving money. If I can't do that then DVC has no value because it also has more restrictions.

For starters, it might be a better deal to rent than to buy in some cases. MouseSavers has a nice analysis of this, and they currently estimate that buying doesn't out-perform renting for a couple of decades assuming you hold until expiration. Salvage changes the equation, but not that much.

They also assume that point rental costs, dues, and room rates all rise at about the same rate. I did a quick check of this for Saratoga comparing 2006 (prior to the Great Recession) to now using the Internet Archive Wayback Machine. Rental rates for SSR points (using DVC Request as a benchmark) grew a bit less 3.2% per year. Dues at SSR grew a bit more than 5.3% per year. These tend to favor renting even more, but again probably not enough to matter.

The TL;DR version is: Renting is not a bad idea. It might even be a better idea for some people, which I'll come to in a minute.

But, for me, the point of timeshares is not to save money. It is to make a commitment to regular vacations, with lodging costs more or less known in advance. The use-it-or-lose-it nature of timeshare assets adds a sense of urgency, and more than once has nudged me to take a vacation I would not have ordinarily taken. For example, while DW was at her annual professional conference this past May, I spent a week hiking in GSMNP and enjoying Dollywood's spring festival. The only reason I did that is that I had Wyndham points burning a hole in my pocket.

And now I have Wyndham points and a valid Dollywood annual pass, so my pockets are ON FIRE.

Am I saving money vs. the cost to just rent the exact same vacations I am taking? You bet---a LOT! But, I'm almost certainly taking more vacations and staying in nicer places than "non-timeshare-owning me" would have.

So, why might renting be a better idea? Because there is no friction in changing your plans and deciding to vacation differently five years from now than you think you will today. You just change your mind. With timeshares, this is harder. And I can tell you that over the last 15 years, my vacation preferences have changed in several very unpredictable ways. I've made that work with timeshares, but mostly by buying more of them. Right now we probably own one too many.

 

[crisi]

I understand your points. My only point is if your taking time value, plus guessing on inflation rates on a break even, then I think you should also add in how long your hold in that position is and what your sell value is. If you plan to hold till the bitter end, then we know the value is 0. But if not holding till the end,,well there will be some salvage value which should also be factored in.
And like all these variables,,,its a crap shoot for trying to find that value.

Which gets back to "its a fun intellectual exercise and shouldn't be used for purchasing decisions."

 

[RoseGold]

Which gets back to "its a fun intellectual exercise and shouldn't be used for purchasing decisions."

Then what do you use for a purchasing decision? The whole point is there are a lot of comps with known cost. Renting points, Swolphin, Wyndham. None of those require tying up five figures in a timeshare.

 

[Genie+]

Say I bought 150pts VGF direct at $25k this year (I did lol) and sold it for $15k in 2040. Contract would still have 20+ years left so $100pp 2040 is possible. That’s not the same as buying VGF for $10k today.
.