Why do people regularly use rack rate for break even?

[sethschroeder]

This is a five figure discussion, more for some of us. It's not like the choices are lock up five figures or never go to WDW.

I just want to outline even in the single digit income percentile you are going to think that way. You have to hit the decimal income percentile to view DVC as doesn't matter money.

Whatever you do, just don't say "I had the money, and I wanted it.". Heads will explode.

Didn't even know you said this until after but fits perfectly with my previous point.

 

[sethschroeder]

They assumed this would grow at 4% (which is a higher rate than I calculated when I looked at David's---from 2006 to now is about 3.2% per year.)

Okay perfect I didn't see that when going through the calculation side.

Two aspects then:
1) Over 20 years you likely have a year where you can't go and lose your money (so that slightly would adjust the math)
2) At 20 years when the breakeven occurs you are left with nothing where as owning means you can sell and recoup some of the value

I think point 2 then comes down to would you invest the money otherwise? Which the answer for me would be no as its going to be spent regardless.

 

[DonMacGregor]

Thats fine but I still need to decide do I drop $50k on upfront DVC costs or do I rent out a yacht in the caribbean.

Everything is finite and there was some decision being made that its better to use the money here than there.

And that is why I think many people fall into a third category (after financial/analytical, or emotional decision makers). Let's call this cohort the "practical decision makers". For them (me), the decision is based more on how often and to what extent I will utilize a luxury purchase. I have a certain amount of cash that I am comfortable spending on luxury items, that I know before hand will not adversely affect my financial security. Sure, I can afford to buy plenty more DVC points, but I also like taking other vacations (it's a big world out there). Let's not blow smoke up our a....es. I'm not suggesting I'm free and easy about dropping $100K on a timeshare (although someone out there likely is).

Having more DVC points won't move the needle financially (unless it's a BIG add-on), but also wouldn't serve any practical purpose. I personally don't want to spend a month in a DVC villa every year. I want to do other things as well. Completely personal choice of course and no criticism of anyone else's vacation preferences. On the other hand, I have a couple of cars that get used very rarely, but I have zero problem with that as I didn't buy them for their utility. The same can be said for people who collect watches, Disney ephemera, etc..

 

[Chili327]

I usually compare to Hilton or whatever place id actually spend the money on to see how much more i'm going to spend for much better accommodations.
Break even may never come, but at least I feel like I got a real estimate.

 

[Sandisw]

I usually compare to Hilton or whatever place id actually spend the money on to see how much more i'm going to spend for much better accommodations.
Break even may never come, but at least I feel like I got a real estimate.

This is what I think is important and varies for everything. As I shared, we did the simple math and it worked against the CR.

I think using options that you wouldn’t choose…like offsite, values, renting, etc,,,,just doesn’t seem to make a lot of sense.

 

[Redheadprincess]

For us it was simple, we were staying at moderates and found we could buy DVC and stay in deluxe for the price of a moderate. And we purchased BCV resale in 2022 and added SSR this year. My average cost in a BCV studio for the times a year we go ranges between $240-288. That is a deal, imo.

 

[Aussie RJ]

I originally bought because we were about to drop $9k on a 2 bedroom rental at CCV, around 500 points for a long stay. When I figured I could buy 250 points and borrow if felt like a no brainer. I was a renter and I can’t get any of that value back.. and if you travel on typically expensive dates like NYE, DVC has even more value.

 

[tidefan]

After being in the program for some 16 years now, it's a bit of a moot point.

Yes, when we first bought in, we were all about the spreadsheets. However, as you grow over time and your family ages, you find you get different things. We were all about taking our DD (and us) to WDW for many great trips. What we found wasn't necessarily that we were saving money, per se, but rather that we could a) go more often, and b) have better accommodations than we would normally do otherwise.

However, things have changed over the course of time. The biggest for us is access to Aulani. We never expected when we first went in 2012 for our "once in a lifetime" trip, that we would now have completed 6 "once in a lifetime" trips to Hawaii. We would have never done that if we didn't own DVC. And, like going to WDW, we've noticed that our visit pattern is so different. Like the parks, if we don't get to something, that's OK, because we'll be back at some point. It really makes your trip more relaxed...

 

[mort1331]

After being in the program for some 16 years now, it's a bit of a moot point.

Yes, when we first bought in, we were all about the spreadsheets. However, as you grow over time and your family ages, you find you get different things. We were all about taking our DD (and us) to WDW for many great trips. What we found wasn't necessarily that we were saving money, per se, but rather that we could a) go more often, and b) have better accommodations than we would normally do otherwise.

However, things have changed over the course of time. The biggest for us is access to Aulani. We never expected when we first went in 2012 for our "once in a lifetime" trip, that we would now have completed 6 "once in a lifetime" trips to Hawaii. We would have never done that if we didn't own DVC. And, like going to WDW, we've noticed that our visit pattern is so different. Like the parks, if we don't get to something, that's OK, because we'll be back at some point. It really makes your trip more relaxed...

That is so much like us. We have been members since 2012 after going since 2010. But we would never have looked at Hilton Head, California, or Hawaii without being members. So for us it has given us different trips, to see different things. We still love coming back to WDW, but now do things different. I drive down a few days early, have solo time and golf, pick up the girls at the airport and visit parks and chill at resorts 1/2 and 1/2 now. They fly home and I have a few more days solo.
Would never have done this prior to DVC, but now look forward to changed travel.

 

[Bearval]

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.

Makes themselves feel better and easier to justify buying into DVC. I originally used the cost of a value room without a discount since the DVC studios are larger and value rooms was where we were staying. If we were staying in a deluxe studio then I would have used a discount of 30% to figure out if it would be beneficial. Long story short, we are past breakeven for what we paid for the contracts including yearly MFs over paying cash for rooms. We have also graduated up to 2 bedrooms which we could never afford ( not so much "couldn't afford" just hard to swallow how much it would cost) to pay cash for. We bought resale at a time when prices were "distressed" so the upfront costs were not all that high.

 

[crisi]

I would be going in a 1br or 2br to WDW regardless.

So what is less over 30-50 years?

• Buy DVC
• Rent DVC
• Book Cash

Buying DVC is less expensive for me for what I am trying to accomplish. I could possibly stay at POP for slightly less money but it doesn't have the kitchen or laundry access so that goes out the window when staying for 10 days or more like we do.



The math from them is flawed on two parts:
1) You can buy-in for under $185 (heck I bought direct in 2020 for $155/point at RIV for our add-on)
2) You will not be renting from a DVC owner at $19/point in a couple years (its went up from like $13 to $18 or 19 already in the last 10 years)

As I said in the very next paragraph, there may be people who would go in a one or two bedroom - those people would very likely save money. You are the rare bird who would pay CRO prices for one or two bedrooms and are probably saving a ton of money.

 

[sethschroeder]

You are the rare bird who would pay CRO prices for one or two bedrooms and are probably saving a ton of money.

I wouldn't go then after the first time if I was paying cash room rates likely.

Since we decided though we are go with going to WDW each year roughly my goal was simply which method leads to the least amount of money given to Disney.

I don't think look back is as valuable (thats done for fun) but upfront I feel there is a need.

So maybe we are saying the same thing and I misread your originally comment. I am with you then on the look back after you already be bought as being less useful.

 

[crisi]

I don't think the look forward is that useful either. Because ROI calculations are flawed (what do you use for your TVM number, are you using rack rate, rental rate, discount rate) and because for MOST PEOPLE (although not you) DVC changes how you go - more often, bigger units, guests. Too often, people use the "best" scenario in order to justify the purchase. Which is great, if you can afford it. And if you are a Disney fan, reading along on these boards, operating paycheck to paycheck, best case analysis is dangerous. But if you can afford it and it works for you, then why bother with the math. There is no scenario where "I would be paying CRO for DVC two bedrooms" isn't going to work out in your favor.

 

[AstroBlasters]

Might I also add to the other great points that buying into DVC takes the “we have to do everything because we don’t know when we are coming back” stress away.

We are on O’ahu right now and had to change our plans to go to the North Shore and Dole Plantation because my FIL is with us and his back started to give him a lot of pain. We were more than happy to spend the time at the resort so we could be closer to him and my MIL because we know we’ll be coming back in 2024 or 2025!

 

[BeachMouse1]

We bought a small VGF during the pandemic for a very reasonable price. We went a few times and just really fell in love and added more points. Our way of doing “Disney” completely changed. Instead of being park warriors we do things like rent a pontoon boat, enjoy a pool day, resort hop, mini golf, and try different dining experiences etc. We never realized how much Disney has to offer and DVC changed the way we look at it. We are fortunate and live in driving distance (well 3 1/2 hours) so now go multiple times a year. I can sit on the balcony or by the pool of a deluxe resort and do some work for a few hours and then casually go to a park or Disney Springs or a nice dinner or a nice fireworks show. When I’m doing this in my mind I have more than broken even I’m ahead of the game!
At some point if I choose to sell I’m sure I will get something for my points even if it’s half of what I paid. That’s my definition of break even

 

[zavandor]

I don't think the look forward is that useful either. Because ROI calculations are flawed (what do you use for your TVM number, are you using rack rate, rental rate, discount rate) and because for MOST PEOPLE (although not you) DVC changes how you go - more often, bigger units, guests. Too often, people use the "best" scenario in order to justify the purchase. Which is great, if you can afford it. And if you are a Disney fan, reading along on these boards, operating paycheck to paycheck, best case analysis is dangerous. But if you can afford it and it works for you, then why bother with the math. There is no scenario where "I would be paying CRO for DVC two bedrooms" isn't going to work out in your favor.

I don't completely agree with you.
You sort of describe what I did: I could afford it and I wanted it, so I bought it. But the math was important as well. Because if putting the money in a bank account and using them to pay CRO discounted rates would have been cheaper or in the same region of buying DVC, it would have been very silly to buy, given that DVC is more complicated and less flexible.
I didn't care if my breakeven was 7 years (the most generous estimates at resale prices when I bought) or 13 years (the least generous, when comparing to renting for $10PP), but it was important to know that it would be cheaper. For example, for me, looking at the latest calculations, I wouldn't buy direct right now. Because the discount is not good enough. But the same calculations worked really well for buying resale 12 years ago.
In the same spirit, I agree that anyone who needs to make hard assumptions (like being able to rent points to pay off MF or financing) shouldn't probably buy. Torturing a spreadsheet with favorable assumptions to get the result one wants is cheating.

 

[TeamRiley]

In the end, where you would 'normally' stay doesn't really matter. The question is, are you willing to buy into DVC so you get on site, high end accomodations for much less money. Still more than you might normally spend, but much less than if you just tried to always find a good deal.

If you are looking for an investment, DVC is a really bad way to go. If you are looking at way more relaxation and much more comfort, bust out your wallet. I my case, I have spent more than I thought I would, but don't regret it one bit.

 

[DVCanadian]

Nothing makes me feel as good about my DVC purchase as looking at the undiscounted cash rates for 2 and 3 bedroom villas.

While it is meaningless because I would never have done the trip below without DVC, I get a lot of positive ego feelings when I look at my cost vs rack rate

Comparing to rack rate is the least complicated way to explain DVC to those without years of disboards research experience

My August 2023 DVC trip - 11 nights in a 2 bedroom ocean view at Aulani.
Rack rate $2,160 per night plus tax = $28,000 (rounded)
Dues from my SSR and OKW points used for the 879 points ($6,982) plus room tax ($535) = $7,517
Roughly a 70% “discount”

Did I “save” $20,500 or spend $7,500, or both

 

[TheLyinKing]

You just have to look at your situation individually. Some people who bought in were actually paying cash rate for deluxes, some staying at moderates. Personally, we've stayed off-site, on-site, split stays for both off-site and on-site, and determined we could spend equal to or slightly less with DVC. So we bought it. Was it the best investment we could've made? Of course not. Could've gone into the market, or a CD, or an HYSA, or a 529. But this was something we wanted, we had the means for it, and we like going to Disney and Hawaii. So for us it was worth it. I have a detailed spreadsheet that I use to keep track of our cost basis and how much we pay "per night", and I'm very happy with it regardless of cash rate or whatever else. I get the added excitement of getting to stay in all these different resorts, and I know that when we do family trips (like we are this year), I have enough points to pool together to accommodate.

 

[cheryl.UK]

We add up what it would cost for each holiday. We broke even at about the 6 trip mark. Now it's only costing us $2000 per year for a 3 week trip if we stay at OKW. Score. But I also look at it this way. We spent $25,000. We could now resell at $36,000 so actually every holiday cost us $2000 in today's money and I walk away with an £11,000 profit if I sold today (minus tax of course).