Is Flipping Contracts a thing?

[RickL]

I recently closed on a resale and I went to the Orange County website to check on the recording status. When I entered the seller's name I was surprised to find literally hundreds of transactions in their name dating back ten years. On average there were 3- 5 recordings each month, both purchasing and selling. The contract I purchased was bought by the seller last September. I guess I am trying to understand how someone could make a profit on this type of process with all the fees involved with each contract. Just curious if anyone has come across this as well. Thanks

 

[ziravan]

Buy loaded, strip out the points and rent them, sell.

It can be done but it's an awful lot of work and capital tied up for the ROI.

I think most people here think it's not worth the hassle. But it's technically doable.

 

[BillPA]

Could have been the law team that processes the foreclosures.

 

[ziravan]

Just off the top of my head math. YMMV.

A 200 point loaded contract (2016, 2017, and 2018 points) could probably be stripped for $5-6/point price differential plus 6/point MF on the 2017 and 2018 points and 10% in fees (closing to buy, broker to sell).

If you bought a loaded 200 point AKV contract for $92, stripped and rented 600 points for $14/point, and sold the now stripped contract for $87, then:

Buy cost is $18,400 plus about $600 in closing so $19,000 and sell for $17,400 minus $~1800 in fees means selling for $15,600 or $3,400 cost.

But. Rent 200 2016 points for $14/pt and 200 2017 for $8 (after crediting back MFs) and same for 2018 and you make $6000.

So. $2600 for your effort. Spin 3-4 contracts a month that way and you could make a decent living.

But. That's a whole lot of work and considering you'd probably need several months of contracts pushing through that pipeline, in order to keep 4 contracts a month spinning, you have to be tying up close to half a million in capital ($80k/month for 6 months worth of contracts in various stages of spin).

That's a bunch of work and capital.

 

[ziravan]

Plus. I'm sure DVC would or could invoke their 20 reservation commercial renting rule to put a stop to that. Eventually.

 

[disneynutz]

A resale broker that we once bought from is was in the business of buying and selling, don't know if they still are.

Bill

 

[JETSDAD]

Just off the top of my head math. YMMV.

A 200 point loaded contract (2016, 2017, and 2018 points) could probably be stripped for $5-6/point price differential plus 6/point MF on the 2017 and 2018 points and 10% in fees (closing to buy, broker to sell).

If you bought a loaded 200 point AKV contract for $92, stripped and rented 600 points for $14/point, and sold the now stripped contract for $87, then:

Buy cost is $18,400 plus about $600 in closing so $19,000 and sell for $17,400 minus $~1800 in fees means selling for $15,600 or $3,400 cost.

But. Rent 200 2016 points for $14/pt and 200 2017 for $8 (after crediting back MFs) and same for 2018 and you make $6000.

So. $2600 for your effort. Spin 3-4 contracts a month that way and you could make a decent living.

But. That's a whole lot of work and considering you'd probably need several months of contracts pushing through that pipeline, in order to keep 4 contracts a month spinning, you have to be tying up close to half a million in capital ($80k/month for 6 months worth of contracts in various stages of spin).

That's a bunch of work and capital.

There's also the possibility of having another year of points on a loaded contract. We purchased this Spring and the contract had 2015 pts banked into 2016, 2016 banked into 2017, and all other points going forward. 2 of those years the dues were already paid on. If someone were to work at a resale company they could have first shot at these contracts and maybe even be able to save on commission on the buy and the sale.

 

[ziravan]

A resale broker that we once bought from is was in the business of buying and selling, don't know if they still are.

Bill

If you were doing your own brokering to sell, that's another $1500 or so per contract or another $6k for 4 contracts per month turnover.

At that rate, that'd be 16k month if you were buying and selling 4 contracts of 200 points each per month.

Still. You'd have have to have at least 6 mos worth of contracts in play to keep a monthly income that high. There'd have to be a pipeline long enough to wait out ROFR/closing, rent points out and clear the renters from the contract prior to sale.

So you'd be managing 24 or more contracts simultaneously. And around 50 per year.

That's enough to make my head hurt.

 

[Dean]

Just off the top of my head math. YMMV.

A 200 point loaded contract (2016, 2017, and 2018 points) could probably be stripped for $5-6/point price differential plus 6/point MF on the 2017 and 2018 points and 10% in fees (closing to buy, broker to sell).

If you bought a loaded 200 point AKV contract for $92, stripped and rented 600 points for $14/point, and sold the now stripped contract for $87, then:

Buy cost is $18,400 plus about $600 in closing so $19,000 and sell for $17,400 minus $~1800 in fees means selling for $15,600 or $3,400 cost.

But. Rent 200 2016 points for $14/pt and 200 2017 for $8 (after crediting back MFs) and same for 2018 and you make $6000.

So. $2600 for your effort. Spin 3-4 contracts a month that way and you could make a decent living.

But. That's a whole lot of work and considering you'd probably need several months of contracts pushing through that pipeline, in order to keep 4 contracts a month spinning, you have to be tying up close to half a million in capital ($80k/month for 6 months worth of contracts in various stages of spin).

That's a bunch of work and capital.

I agree it's work and risk but it's doable. From fully loaded to fully stripped one could clear maybe $5-20 a point depending on closing costs done on the open market. But someone with an inside track like a broker could do better because they'd have access to fire sale opportunities plus potentially first crack at the best contracts.

Plus. I'm sure DVC would or could invoke their 20 reservation commercial renting rule to put a stop to that. Eventually.

Maybe but since DVC has made a big deal of separate masters being treated as separate members, it'd be tough for them to do so and could potentially create other issues if they tried to change to treating them as a single entity.

 

[TexasChick123]

There are brokers who flip them. They rent out the points themselves through their company's rental section. They also make money when the buyer pays them the commission when they sell the contract. They just have a steady stream of them. I know of a couple who do it.

 

[dalerb]

I recently closed on a resale and I went to the Orange County website to check on the recording status. When I entered the seller's name I was surprised to find literally hundreds of transactions in their name dating back ten years. On average there were 3- 5 recordings each month, both purchasing and selling. The contract I purchased was bought by the seller last September. I guess I am trying to understand how someone could make a profit on this type of process with all the fees involved with each contract. Just curious if anyone has come across this as well. Thanks

I saw something similar under BoaHoang Ba Lam or some combination of the three names.

 

[dalerb]

There are brokers who flip them. They rent out the points themselves through their company's rental section. They also make money when the buyer pays them the commission when they sell the contract. They just have a steady stream of them. I know of a couple who do it.

Yep. Just be aware of this practice when buying resale. Make a low offer on stripped contracts.

 

[disneynutz]

I agree it's work and risk but it's doable. From fully loaded to fully stripped one could clear maybe $5-20 a point depending on closing costs done on the open market. But someone with an inside track like a broker could do better because they'd have access to fire sale opportunities plus potentially first crack at the best contracts.

Maybe but since DVC has made a big deal of separate masters being treated as separate members, it'd be tough for them to do so and could potentially create other issues if they tried to change to treating them as a single entity.

We went back and forth negotiating our first resale contract only to find out after closing that the contract was owned by the broker who had 20 or so listed on the orange county website.

Bill

 

[Dean]

We went back and forth negotiating our first resale contract only to find out after closing that the contract was owned by the broker who had 20 or so listed on the orange county website.

Bill

Doesn't that just feel a little unethical to you?

 

[disneynutz]

Doesn't that just feel a little unethical to you?

Yes it does, especially when the agent did not disclose and acted like he needed to take our counters to the seller when the seller was actually in the same office. All of our additional 8 resale contracts were purchased through a different broker.

Bill

 

[Dean]

Yes it does, especially when the agent did not disclose and acted like he needed to take our counters to the seller when the seller was actually in the same office. All of our additional 8 resale contracts were purchased through a different broker.

Bill

I wonder if that's illegal for a situation where they are supposed to represent both parties equally.

 

[huskerfanatic7]

if I ran Disney i would flag the names of people who do this and excercise ROFR on every contract they try to buy

 

[MouseOfCards]

Maybe but since DVC has made a big deal of separate masters being treated as separate members, it'd be tough for them to do so and could potentially create other issues if they tried to change to treating them as a single entity.

Can you clarify this? Are you saying that one broker could own contracts under every single UY and the commercial limit only applies to each UY?

 

[Matty B13]

Yes it does, especially when the agent did not disclose and acted like he needed to take our counters to the seller when the seller was actually in the same office. All of our additional 8 resale contracts were purchased through a different broker.

Bill

And realtors wonder why no one trusts them

 

[Dean]

Can you clarify this? Are you saying that one broker could own contracts under every single UY and the commercial limit only applies to each UY?

I think it's an unknown factor but theoretically yes. DVC has made a fairly big deal of treating ownerships separate if there are any variations such as UY or registration unlike some other mini systems. The problem with the "commercial" issue is there is not a formal delineation. But given that they have made their bed on treating them separately, it could cause issues if they tried to roll them together. But even then one could own twenty 200 point contracts under one master and potentially stay good under this topic.