Loaded versus stripped contract

[Disfamwa]

If a business that made money buying loaded contracts, stripping them by renting them at $25/pt, and then selling then stripped told me my points were worth $8/pt, I would take that estimate with a HUGE grain of salt.

Assuming you have plenty of time to use them, I’d put loaded points closer to $15-20/pt (more if those points mean you are able to avoid a cash booking at your resort, assuming here they aren’t trying to get you to pay prior years’ dues), present year points early in the use year at $20 minus dues paid. Future years I would actually value more dearly (based on how I use points), I would want around $20/pt for VGF/Poly and more than $25/pt for BCV/BWV. Rooms at BCV/BWV can easily get to $30/pt and you’re going to be paying dues for those UYs whether you get the points or not.

For this reason, I’ve been happier buying loaded contracts than stripped ones, because the market values points differently than I do—though I did buy a BCV contract this year without any 2023 points, which I got about $20 below a fair price on a contract with its 2023 points—my reasoning being that by the time I was looking, it wouldn’t be able to use home resort advantage (or likely get any rooms) at BCV with 2023 points anyway.

This is how I view it too. I just bought a loaded December use year contract and didn’t pay dues on the 2022 or 2023 points. I just closed on the contract and will have over a year to use the banked points and two years to use the 2023 points. I’m taking a trip that I was going to have to rent points for, so I valued these points at $18 per point ($36 total) since that’s the lowest I could rent for. I payed more per point than some contracts, but I felt it was a price that provided value and was for the use year and size I wanted.

 

[Mikey15]

I believe I read that stripped contracts are generally over valued. I have been looking at a lot of contracts and want to see if I understand how a stripped contract should be valued.

In this hypothetical I am considering 2 contracts at a resort with $8.20 dues. One has 175 points for 2024 and 2025 and the other has 200 points for 2025 only.

If a fair deal for the 175-point contract is $150 a point plus 2024 dues you get $26,250 plus $1435 = $27685.

You end up with the same points to use for the next 7 years and pay $1435 less in dues over that time. I did not consider dues increases.

Does that mean the 200-point contract would have a value of $27,685 or $138 a point with no due's payment until 2025?

Both contracts are available so would offers of $27,685 in total for both be how you would place your bid?

I’ve seen a lot of responses addressing the thread title, but I thought I’d respond a bit to Tom1944’s actual hypothetical above. The OP is comparing a stripped 200pt contract to a whole 175pt one. In that scenario, the total points the buyer has access to over the first 8 years of the contract is the same (1,400).

First, I’d say there’s a bit of apples vs. oranges to the question posed, and it’s totally fine for people to normalize that by talking about loaded vs stripped overall.

It is worth noting that “loaded” usually means access to banked points as well, likely where dues have already been paid, rather than just the contract amount of points.

But the question here is actually an interesting one on its own. You do have some variables like:
-Would you be banking the first year points anyway?
-Is there a cash stay (or rental) you’d make in the first year because you don’t have first year points?
-If you weren’t going that first year and you did have first year points, would you rent them out for market value?
The answer to those can change the outlook.

The whole thing about ‘they equal out over 8 years’ is to me an attempt to turn an applesranges situation into an apples:apples one. It can work that way if you bank the 175 contract’s year 1 points, and continue banking a portion each year so you’re only using the same points you’d use under the other contract. Or borrowing on the 200pt contract each year to use it similarly to how you could use the other one. It’s a good basis for analysis if one way or another you want to ~use~ those 1,400 points in 8 years.

If you are willing to rent on the market, however, then to me it makes sense to consider the point value to be the market rate, either to rent points you’d use in the first year or to rent out points you wouldn’t use (less any dues cost). If we want to talk valuation, this is where my brain goes. If I can rent out current year points for $20 less $8.2 dues, I’d value a contract that didn’t have them at ~$9pp less (there’s a range here depending on your tax bracket for the rental income). If a contract had 175 points banked (dues paid), plus 175 current year, I’d value it ~$15pp more than one that’s not “loaded.” I’d look at it on a per point basis if comparing contracts of different size, bearing in mind the premium & liquidity of <100pt contracts over 100-200 and 200+ ones.

In short, I think there “should” be a spread of ~$25 between a loaded (“double point”) contract and a stripped one for a resort with a marketable booking window – less for an SSR or OKW – but the listing prices on the market are usually a lot closer than that. This is why loaded contracts have a reputation for better “value.”

 

[macman123]

I value stripped points at $20pp which is what I could rent them out at.
Same with loaded contracts - I consider $20pp max for those I could rent

 

[TheDailyMoo]

In short, I think there “should” be a spread of ~$25 between a loaded (“double point”) contract and a stripped one for a resort with a marketable booking window

I kind of went with a similar analysis when purchasing my recent contract. I got a semi stripped (points starting next June) for $105 (a great deal) when most of the going rates were in the 130-140s at the low end regardless of loaded or stripped status. I figured if I was somehow able to find a loaded contract with banked and current year points I probably wouldn't have gotten any bites below 140. Maybe 135. But even if I said best case I got a seller to go 130 that's still a $25 delta for having basically two extra years of points. I already have next year's vacations planned so I wouldn't really be using those extra points which meant renting. I assumed a seller wouldn't give a great price AND pay the dues so I did the 20 - 8.xx netting about $12. Renting the banked points for the full $20. That's $32 income from renting loaded points in my best case scenario. Uncle Sam wants his share and I'd shave off about $9 pp in income taxes leaving me with a net of ~$23. 105+23 =127...round up to 130 just to make it easier math. So it's basically the same cost only I didn't have to lay out the extra money up front and didn't have to go through the hassle of renting two sets of points.

TL:dr I agree with your assessment