buying a contract that has borrowed points

[qv09vvp]

just so I know what i'm getting into

if for example a 200 point Oct use year contract has

• 0 points coming in oct 2017
• only 50 points coming in 2018

when Jan 2018 rolls around, would I be paying dues on all 200 points or just the 50 left?

Thanks in advance!

 

[chalee94]

Dues have nothing to do with UY. Dues are paid for the calendar year.

So you would pay the dues for 200 pts for 2018 to Disney in early 2018.

(For resales, it is also true that everything is negotiable.)

 

[ziravan]

I wouldn't buy that contract. There is almost no way you could get a decent deal on that contract because the market undervalues individual points within a contract.

In your example, 200 point contract with all of 2017 and 3/4 of 2018 points stripped, you're losing 350 points of value from a non-stripped contract and 550 points of value from a contract that was loaded with 2016 points.

You almost certainly wouldn't have to pay 2016 dues on a loaded contract so that value would be 2016 (200 x $12/pt) plus 2017 (200x $6/pt (value - mfs) plus 2018 (150 x 6/pt) = $4500 or, for 200 points, $22.5/pt.

Unless you're getting $22.5/pt less than average asking price, you're getting rooked on that deal. For example, AKV can be had for $88/pt. A contract that stripped shouldn't be worth more than $67/pt. And nobody is selling at that price.

Find at least a non-stripped contract and preferably a loaded one. Even if you have to wait.

That's a much larger monetary consideration than who is paying MFs (something negotiable).

Put another way, if you bought the same contract loaded, the price wouldn't move up much and you could rent those points out and make back $22.5/point in value from the sales price. Even though you can't buy a $67/pt AKV contract, you could get exactly that by buying a loaded contract at $88/point and renting out 550 points:

A loaded 200 pt contract would be worth $4500 more than the almost completely stripped contract that you're considering. The market doesn't recognize that difference, but you should.

 

[pdude81]

You would put in an offer with a seller credit based on the amount of 2018 points used up, so that you could theoretically have the money ready to pay when 2018 rolls around. I have seen plenty of listings that already show this as there are a number of stripped contracts out there.

 

[Dean]

just so I know what i'm getting into

if for example a 200 point Oct use year contract has

• 0 points coming in oct 2017
• only 50 points coming in 2018

when Jan 2018 rolls around, would I be paying dues on all 200 points or just the 50 left?

Thanks in advance!

You need to understand how the dues are charged so you can evaluate each deal. Dues are charged on a calendar year basis and are per point. So for this situation the dues to be paid Jan, 2018 would cover the remainder of the year of the 2017 dues and a portion of the year for the 2018 dues. This this example you'd be overpaying by MORE than the amount of the 2018 dues for points you had no use of. In addition, the points themselves have significant value. So compared to that same contract fully loaded (all 2016 points banked to 2017 plus all future points and even 2015 banked to 2016 UY), you're down 550 point not counting the 2015 banked ones which you might not be able to use. If you value them at $15 a point, that's $8250. The sale price difference might be $3K but not $8K. But there are other factors such as the home resort.

So in this example even for the Jan, 2019 dues payment, you'd still be paying for points you didn't have.

 

[ELMC]

just so I know what i'm getting into

if for example a 200 point Oct use year contract has

• 0 points coming in oct 2017
• only 50 points coming in 2018

when Jan 2018 rolls around, would I be paying dues on all 200 points or just the 50 left?

Thanks in advance!

I would ask your broker but many times in cases like these there is a seller credit for the dues that you will pay in January of 2018 for the missing 2018 points.

 

[oldwash]

You need to understand how the dues are charged so you can evaluate each deal. Dues are charged on a calendar year basis and are per point. So for this situation the dues to be paid Jan, 2018 would cover the remainder of the year of the 2017 dues and a portion of the year for the 2018 dues. This this example you'd be overpaying by MORE than the amount of the 2018 dues for points you had no use of. In addition, the points themselves have significant value. So compared to that same contract fully loaded (all 2016 points banked to 2017 plus all future points and even 2015 banked to 2016 UY), you're down 550 point not counting the 2015 banked ones which you might not be able to use. If you value them at $15 a point, that's $8250. The sale price difference might be $3K but not $8K. But there are other factors such as the home resort.

So in this example even for the Jan, 2019 dues payment, you'd still be paying for points you didn't have.

So I'm having a hard time wrapping my mind around this. So you are saying that when I paid my 2018 bill on my June use year, I was actually paying on 2107 points? If so, how does this affect valuation?

Lets take a June use year with 200 points, with no 17, no 18, and half 19 gone.

Currently 18's should be paid up, correct?
Buyer (who would then be the owner) would be billed for all of 2019 dues, correct?

If the 2 above are correct, I would think this stripped contract vs a contract with 18 (that buyer would pay for) and 19 pts intact would be worth at least $2400 less ($6x200 on 18s, and $12x100 on 19s)

 

[Dean]

You have to separate dues from Use Year, they are independent for DVC. Dues are pain on a Calendar year basis so in Jan you paid for Jan through Dec of 2018. For a June UY that means you paid for 5 months of 2017 and 7 months of the 2018 points. The way to prove this is to look at buying direct and what dues would be charged if buying now getting points in June for a 2018 UY, By the way, the answer is 7 months of dues and would have been the same answer if one bought months ago getting June 2018 points.

Using your example, and comparing a June UY bought a few months ago, no points until June 2019 vs a fully loaded contract of 2016 banked to 2017, all 2017 and all 2018 & 2019 points. That's 3 years worth of points, with 1 yr needing to be used short notice. If we just use round numbers of $15 per point for points that can be easily used or banked and $5 per point for the banked points that are more restricted we're at a $35 per point difference. Assuming the buyer reimbursed for the 2018 dues (covering part of 17 & part of 18 points) and paid the 2019 dues, we paid roughly $6 per point in dues so we're left with a difference in value somewhere in the $29 per point range. So on 200 points that's around $5800 difference. Remember the buyer will be paying those extra dues in Jan 2019 on points they didn't have for the stripped contract as well. Buying now you couldn't use those banked points which brings the values closer together by reducing the value by the $5 pp for the banked points.

Obviously things for sale are worth what people are willing to pay and the marketplace has never adjusted the value accordingly. Another way to look at it, and possibly a more real example is to assume you bought the stripped contract and then rented points to make up the difference.

I can't say for sure why resale companies approach it differently. I'm guessing it's a throwback to the weeks system where you buy the week you pay the dues but since DVC charges dues differently this doesn't fit. So do they not understand? Do they not care? Or are they doing it on purpose? Regardless I think it's helpful to understand how it's done to compare but sometimes one has to look at the big picture.

 

[oldwash]

I believe you on the dues, but still not understanding if it matters except maybe the last year of the contract. Technically I might be paying for points in different years, but if it's a 200 point June use year with 100 2019 points borrowed when I purchase it, come January of 2019, Disney is going to want to be payed for 200 points, and I'll get 100 2019 Jun use year points. Yes, I hope?

I was using $6 (MFs) and $12 ( worth of points with longer expiration), and if I follow you are using $6 and $15. I was also assuming no 16, 17 points on either contract. All of 18, but only half of 19 used on the "stripped contract". So using your differential of $9, it would be 200 x 9 for 2018 and 100 (half) x 15 for 2019. So $3300

While resale companies might approach it differently, I'm sure Disney crunches the numbers during ROFR

 

[Dean]

I believe you on the dues, but still not understanding if it matters except maybe the last year of the contract. Technically I might be paying for points in different years, but if it's a 200 point June use year with 100 2019 points borrowed when I purchase it, come January of 2019, Disney is going to want to be payed for 200 points, and I'll get 100 2019 Jun use year points. Yes, I hope?

I was using $6 (MFs) and $12 ( worth of points with longer expiration), and if I follow you are using $6 and $15. I was also assuming no 16, 17 points on either contract. All of 18, but only half of 19 used on the "stripped contract". So using your differential of $9, it would be 200 x 9 for 2018 and 100 (half) x 15 for 2019. So $3300

While resale companies might approach it differently, I'm sure Disney crunches the numbers during ROFR

Disney crunches the numbers for them, not for the buyer or seller per se. IMO it's important to you understand what you are and are not getting. The money that's overpaid is simply gone. It will come to light at the end of the RTU but paying it up front is a major cost difference. These funds don't go to Disney or DVC, they go as a reimbursement back to the seller.

 

[oldwash]

Thanks. Great insight as usual.

 

[Jason@dvcstore]

just so I know what i'm getting into

if for example a 200 point Oct use year contract has

• 0 points coming in oct 2017
• only 50 points coming in 2018

when Jan 2018 rolls around, would I be paying dues on all 200 points or just the 50 left?

Thanks in advance!

I noticed this was posted June of 2017. If you purchased this from The Timeshare Store, Inc.® and the closing took place before 12/1/17 the seller would be responsible for the annual dues on all 200 points from 2017. The seller would also be responsible for the annual dues on the 150 points they used from the 2018 allocation. The buyer would get a credit at the closing for those 150 points from 2018. The buyer would then get the full bill on 200 points for 2018 but would have received a credit on 150 points from 2018 at closing.

I hope that helps.