Buying DVC - Use the Points - Sell the Contract

[dalerb]

Upon searching the Orange County Comptroller's website for warranty Deeds, I came across what appears to be a practice where a member buys loaded contracts, uses the available points to apparently book reservations, and then sells off the stripped contract; all in about 6 months or less. It would only make sense if this individual is using the points to book and sell reservations to other potential guests. Does anyone have knowledge of this practice?

 

[Friendlyadvice2]

Upon searching the Orange County Comptroller's website for warranty Deeds, I came across what appears to be a practice where a member buys loaded contracts, uses the available points to apparently book reservations, and then sells off the stripped contract; all in about 6 months or less. It would only make sense if this individual is using the points to book and sell reservations to other potential guests. Does anyone have knowledge of this practice?

What do you mean of by "knowledge" of this practice? Yes, this does occur and I've seen several instances of it over the years as well as other "practices" where people really try to think outside the box to make a quick buck. Also, keep in mind that while in some cases the owner is making reservations with the extra points, in most cases, they are simply transferring the points to another membership number they control and managing the points from that contract which enables the owner to flip the contract more quickly without waiting for any reservations to have taken place.

 

[disneynutz]

We used a selling broker who did this and they didn't even disclose that they were the owners of the deed that we bought.

Bill

 

[dalerb]

What do you mean of by "knowledge" of this practice? Yes, this does occur and I've seen several instances of it over the years as well as other "practices" where people really try to think outside the box to make a quick buck. Also, keep in mind that while in some cases the owner is making reservations with the extra points, in most cases, they are simply transferring the points to another membership number they control and managing the points from that contract which enables the owner to flip the contract more quickly without waiting for any reservations to have taken place.

I'm a DVC newbie and I am just inquiring if anyone had heard of members doing this. I don't have an opinion about it, just curious if its a common practice. It looks like an economical way to get access to points cheaper than renting. We apparently bought a contract on the sell side of a "contract flip."

 

[Friendlyadvice2]

I'm a DVC newbie and I am just inquiring if anyone had heard of members doing this. I don't have an opinion about it, just curious if its a common practice. It looks like an economical way to get access to points cheaper than renting. We apparently bought a contract on the sell side of a "contract flip."

I don't have an opinion either other than to say that some owners will say it can be lucrative for various reasons, while others will say there are much easier ways to make money and would rather not bother. Obviously there can be tax implications as well. And you're not the first owner to report the discovery that their new contract was the product of a flip. The fact that it was flipped certainly does not negatively impact your contract in any way. All that matters is that you're happy with the terms of your purchase regardless of the history of the contract!

 

[supersnoop]

Upon searching the Orange County Comptroller's website for warranty Deeds, I came across what appears to be a practice where a member buys loaded contracts, uses the available points to apparently book reservations, and then sells off the stripped contract; all in about 6 months or less. It would only make sense if this individual is using the points to book and sell reservations to other potential guests. Does anyone have knowledge of this practice?

You can't tell if a contract is loaded or if the buyer used all the points by looking at the deeds.

 

[dalerb]

I don't have an opinion either other than to say that some owners will say it can be lucrative for various reasons, while others will say there are much easier ways to make money and would rather not bother. Obviously there can be tax implications as well. And you're not the first owner to report the discovery that their new contract was the product of a flip. The fact that it was flipped certainly does not negatively impact your contract in any way. All that matters is that you're happy with the terms of your purchase regardless of the history of the contract!

I agree. We are happy with our purchase.

 

[dalerb]

You can't tell if a contract is loaded or if the buyer used all the points by looking at the deeds.

In our case, I can say the contract we purchased was closed by the current owner in mid October 2016. The 2017 points were used for a trip ending April 27, 2017. The contract was listed for resale on or about February 10, 2017. So it appears the contract was purchased, points were used and the contract was resold. Not that I care, but that's the basis for my assumption.

 

[DougEMG]

No surprise about this happening. The last couple of years have seen a huge increase in the number of stripped contracts for sale. It would be very easy for a broker to buy loaded contracts, strip them and resell them.

 

[dalerb]

No surprise about this happening. The last couple of years have seen a huge increase in the number of stripped contracts for sale. It would be very easy for a broker to buy loaded contracts, strip them and resell them.

So the stripped contracts should sell for a discount if the market was truly market driven.

 

[Nie0214]

I'm sure this must be the case for the one we're under contract on. The Orange County site had dozens of contracts under this seller name and we have a delayed closing due to reservations. Wasn't totally stripped though.

I rarely saw loaded ones while shopping.

 

[dalerb]

I'm sure this must be the case for the one we're under contract on. The Orange County site had dozens of contracts under this seller name and we have a delayed closing due to reservations. Wasn't totally stripped though.

I rarely saw loaded ones while shopping.

Yep. Same here. Good luck getting loaded contracts trough ROFR. It would appear there may be some manipulation in the resale market at play. My question is how do the "contract flippers" get their purchases through ROFR?

 

[JETSDAD]

Yep. Same here. Good luck getting loaded contracts trough ROFR. It would appear there may be some manipulation in the resale market at play. My question is how do the "contract flippers" get their purchases through ROFR?

I just passed ROFR with a fully loaded contract (2015 banked into 2016, 2016 banked into 2017). I'm sure they have some taken but they're not out anything if that happens anyways.

 

[dalerb]

I just passed ROFR with a fully loaded contract (2015 banked into 2016, 2016 banked into 2017). I'm sure they have some taken but they're not out anything if that happens anyways.

Very true. They would have to make offers on multiple contracts which takes inventory off the market and may drive up the price overall.

 

[icc2515]

Good luck getting loaded contracts trough ROFR. It would appear there may be some manipulation in the resale market at play. My question is how do the "contract flippers" get their purchases through ROFR?

Look at the rofr thread, you will find plenty of loaded contracts passed and plenty of stripped taken. Most important is UY and number of points. If Disney needs a 150 point BWV with Aug UY and there is one in ROFR they will take it stripped, loaded or otherwise. If the deal is too good then they will take that also. Every contract I have bought has been fully loaded some with double points in the current UY.

I do admit to saying to my wife what kind of an idiot takes a giant vacation using all there points including all the points from the next UY and then puts the contract on the market. I now know that I am the idiot for not thinking of this brilliant idea. Take a 200 point BWV contract with 400 point current UY (200 transferred from previous UY). You can rent out 600 points at $15pp for $9000. $625 closing cost, $2472 annual dues on 2017 and 2018 points bought at $88pp. Sell at $93pp 5% commission is $930 plus $150 estoppel fee leaves a profit of $5823. You might even find a contract with double current points and full previous years points (I am buying one like this right now, passed rofr). That would give you an extra $3000 profit.

 

[dalerb]

Look at the rofr thread, you will find plenty of loaded contracts passed and plenty of stripped taken. Most important is UY and number of points. If Disney needs a 150 point BWV with Aug UY and there is one in ROFR they will take it stripped, loaded or otherwise. If the deal is too good then they will take that also. Every contract I have bought has been fully loaded some with double points in the current UY.

I do admit to saying to my wife what kind of an idiot takes a giant vacation using all there points including all the points from the next UY and then puts the contract on the market. I now know that I am the idiot for not thinking of this brilliant idea. Take a 200 point BWV contract with 400 point current UY (200 transferred from previous UY). You can rent out 600 points at $15pp for $9000. $625 closing cost, $2472 annual dues on 2017 and 2018 points bought at $88pp. Sell at $93pp 5% commission is $930 plus $150 estoppel fee leaves a profit of $5823. You might even find a contract with double current points and full previous years points (I am buying one like this right now, passed rofr). That would give you an extra $3000 profit.

Good point. So it would appear that it's luck of the draw when it comes to passing ROFR.

 

[crisi]

It isn't a common practice usually. A number of years ago (before the 2008 recession), DVC values were going up so quickly that you could buy an SSR contract, get the additional "bonus" points (the sales incentive at the time), strip the contract, and sell the contract for only slightly less than what you bought it for - with a large family trip under your belt.

For most people, broker commission and closing costs are going to be expensive enough that you'd have to find a bargain contract and flip it for a lot of money. But if you were a broker anyway, you'd save the commission.

Don't forget that you are likely to have to pay dues on the points used. Resale buyers generally don't pay full value for "loaded" points, but most balk at paying dues on points they won't get to use. You could sit on the contract hoping for someone who is willing to pay dues and a premium price on a stripped contract.

 

[DougEMG]

So the stripped contracts should sell for a discount if the market was truly market driven.

Historically purchaser have not priced stripped and loaded contracts at what I consider their true value, hence there is the opportunity for people who want to make the effort and take the risk to buy, strip and then sell. In other words flip the contract.

 

[DougEMG]

Good point. So it would appear that it's luck of the draw when it comes to passing ROFR.

There are many unknown factors that go into why Disney will ROFR one contract over another and they aren't telling. One thing though is that if Disney is trying to combine points from two contracts they both have to be from the same unit, which could explain why you see contracts with more points and a lower price pass at the exact same time as another one gets taken.

 

[ELMC]

Look at the rofr thread, you will find plenty of loaded contracts passed and plenty of stripped taken. Most important is UY and number of points. If Disney needs a 150 point BWV with Aug UY and there is one in ROFR they will take it stripped, loaded or otherwise. If the deal is too good then they will take that also. Every contract I have bought has been fully loaded some with double points in the current UY.

I do admit to saying to my wife what kind of an idiot takes a giant vacation using all there points including all the points from the next UY and then puts the contract on the market. I now know that I am the idiot for not thinking of this brilliant idea. Take a 200 point BWV contract with 400 point current UY (200 transferred from previous UY). You can rent out 600 points at $15pp for $9000. $625 closing cost, $2472 annual dues on 2017 and 2018 points bought at $88pp. Sell at $93pp 5% commission is $930 plus $150 estoppel fee leaves a profit of $5823. You might even find a contract with double current points and full previous years points (I am buying one like this right now, passed rofr). That would give you an extra $3000 profit.

In this example you are buying a contract with two years worth of points for $88 per point and selling a stripped contract (or one with only the current UY points) for $5 more. While I will concede that the DVC resale market is not the most efficient, your example assumes that you can sell a less attractive contract for a higher price and/or that prices are going to go up. I'm not so sure it's that simple. Furthermore, anybody who purchased using this strategy at this time last year is not realizing profits given the recent fluctuations in the market.

I'm not saying that it can't be done, and I agree with what you say in theory, but I think to try it is extremely risky and I certainly would not advise anyone to do it.