Loaded versus stripped contract

[tom1944]

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?

 

[AstroBlasters]

You are going to get a wide range of opinions on this…. that is what makes a market.

I tend to think of things in terms of cost per point instead of the all in cost.

Also, it’s important to differentiate between banked points with a 7-11m window vs. banked points inside a 7m window vs. current use year points that are bankable. Allow 60-90 days for ROFR and point loading.

Some people value the stripped contract at $22 a point lower because that would be the cost to rent for a year. Inverse for a loaded contract.

Others value it at rental cost ($25 to $22) less the cost of dues for a year. Inverse for a loaded contract.

 

[thanxfornoticin]

Is this a new purchase or an add-on? In your mind, how are you going to use the points? Is it a problem to wait until 2025 to start using? Keep in mind, once the contract is yours, you actually could borrow 2025 points for a 2024 stay. Finally, is 175 points enough, or does 200 meet your needs better, based on time of year, room type, etc? I know there's always an important analysis of the cost and getting the best deal - but ultimately, you're buying a timeshare for vacationing, and should buy the points at a location you desire - when you want to go.

 

[Jlo85]

I compare profitability indices over renting for comparing contracts. When I was shopping for BLT, I found the below prices to have comparable indices. From this analysis, I would gather that I should pay (at most) $21/18% more per-point for a fully-loaded contract vs. a fully-stripped one. This already contemplates that you would need to pay for the dues for any points.

Resort	Status	Price
Bay Lake Tower	Fully Stripped	$120
Bay Lake Tower	Semi-Stripped (Points available next use year)	$128
Bay Lake Tower	Standard (Points available this use year)	$133
Bay Lake Tower	Loaded (2x points available this use year)	$141

Based on your example, I would say paying an extra $20/point ($12/pt + $8 dues) for a year of points probably isn't meaningful. You could just rent.

 

[pianomanzano]

It's hard to answer your post without knowing the specifics like home resort and contract expiration. When it comes to DVC I hate to think about it solely from an economic or financial perspective.

In general, I've always heard that loaded contracts are undervalued, with respect to going rental rates (i.e. you'd get more money renting out any extra points vs listing a contract with those extra points on the market). So consequently, stripped contracts could be overvalued if you're going with that same logic?

For what it's worth, if you play around with the DVC broker price opinion tool on dvcresalemarket.com, the difference between an extra year's worth of points on the contract is $8/pt. Use any resort and UY, toggle between 0 points, 1x contract size, and 2x contract size in 2023, and you'll see the difference is $8/pt as you add more points.

 

[intamin]

As everyone has pretty much already said, this is incredibly subjective. I think it's important to take it on a case by case basis.

Do you plan to use the points this year for an upcoming trip? If so, I would value a loaded contract significantly more. If not, you could value them at 20 dollars per point if you were to rent, but at the same time, how much of that goes to broker fees and taxes? IMO the best value of DVC is obviously when you use the points yourself vs. renting them out. I personally don't value it at 20 dollars because of taxes and fees but I feel like most stripped contracts are historically overvalued where people are only paying 10 dollars less for a stripped contract when realistically it should probably be closer to 15+ per point less, even less if you're unable to go on an upcoming trip as a result.

 

[Disdreaming479]

Sometimes the seller has over valued banked points imo. Availability for an actual vacation tightens up pretty quickly if you want a week. As a buyer, contracts with 2022 points still available means the seller isn’t using the membership and should price to sell but that’s not always the case.

 

[Sandisw]

I just looked at the points that I get to start and when I was buying. I’d compare that to my potential trips and go from there.

I would consider spending more if banked points were there, but never had a set dollar amount in mind because it was about the long term and not short term.

After a few years, it’s going to be the same so never made my decision hard and fast for that initial information.

 

[DanCali]

Some people value the stripped contract at $22 a point lower because that would be the cost to rent for a year. Inverse for a loaded contract.

Others value it at rental cost ($25 to $22) less the cost of dues for a year. Inverse for a loaded contract.

Even if they rent, they should not value it at $22 because if the contract was not stripped, they would presumably be paying the dues on the points, so it's still the difference between the rental cost and dues.

 

[tom1944]

I just noticed my typo in the title. Could a moderator fix that for me.

To the questions asked I do not need the 2024 points. I would make sure they are banked.

I need anywhere from 160 to 200 points.

 

[AstroBlasters]

Even if they rent, they should not value it at $22 because if the contract was not stripped, they would presumably be paying the dues on the points, so it's still the difference between the rental cost and dues.

I mean, people can value it at whatever they want, right?

I was just trying to state the formulas that I tend to read the most.

 

[DanCali]

If the value of the points from each year was the rental cost less the cost of the dues, people should be paying much more than ~$100 for Aulani (unsubsidized). By that math, a price of $200 could also be easily justified. On one hand, buyers want to pay $90 for a 40 year Aulani contract, but then if one year is missing they want to pay $70. Something seems somewhat off in that math.

I tend to have a different perspective on this which probably probably causes me to favor (and overpay for) stripped contracts...

One of the common phrases on these boards is "the value is in its use" (mostly in the context of allegedly overpriced 2042 resorts). So if I am mostly buying to use, rather than be in the rental business, then if I'm buying a stripped 2064 contract and it has 39 instead of 40 years, then I lose "2.5% of usage". On a $160/pt contract, that's just $4. But if the contract expires in 18 years and I get just 17 years, then I lose almost "6% of usage", so the discount on a stripped shorter contract should be greater. Since the "Instant Offer" engine of the board sponsor values loaded/stripped at $6/pt, I am probably biased towards that number as well because that engine does reflect what a (very informed) buyer is willing to actually pay. But I'm definitely not discounting stripped contracts at $10+/pt nor am I willing to pay an extra $10+/pt for the loaded ones.

 

[AstroBlasters]

I tend to have a different perspective on this which probably probably causes me to favor (and overpay for) stripped contracts...

One of the common phrases on these boards is "the value is in its use" (mostly in the context of allegedly overpriced 2042 resorts). So if I am mostly buying to use, rather than be in the rental business, then if I'm buying a stripped 2064 contract and it has 39 instead of 40 years, then I lose "2.5% of usage". On a $150/pt contract, that's just $4. But if the contract expires in 18 years and I get just 17 years, then I lose almost "6% of usage", so the discount on a shorter contract should be greater. Since the "Instant Offer" engine of the board sponsor value loaded/stripped at $6/pt, I am probably biased towards that number as well. But I'm definitely not discounting stripped contracts at $10+/pt nor am I willing to pay an extra $10+/pt for the loaded ones.

Straight line depreciation is a logical way of looking at it.

I personally tend to value my vacations today more because of my kids ages as well as uncertainty about health or job status in the future. I also consider that a stripped contract means an additional year of cash out of my pocket to pay for lodging.

Another way of looking at the loaded contract is what is the rental value of those points, which could be $8-$11 after dues, depending on the resort. I know that buying a loaded VGC contract and renting the previous years points was helpful in our decision process of being able to pull the trigger.

Either way, it’s a good example of how two parties could look at the same contract and assign a different value.

 

[MyDogTink]

I compare profitability indices over renting for comparing contracts. When I was shopping for BLT, I found the below prices to have comparable indices. From this analysis, I would gather that I should pay (at most) $21/18% more per-point for a fully-loaded contract vs. a fully-stripped one. This already contemplates that you would need to pay for the dues for any points.

Resort	Status	Price
Bay Lake Tower	Fully Stripped	$120
Bay Lake Tower	Semi-Stripped (Points available next use year)	$128
Bay Lake Tower	Standard (Points available this use year)	$133
Bay Lake Tower	Loaded (2x points available this use year)	$141

Based on your example, I would say paying an extra $20/point ($12/pt + $8 dues) for a year of points probably isn't meaningful. You could just rent.

This chart is helpful!!
When you refer to this UY, would that be Feb 2023 or Feb 2024. How far into a UY do you consider it to be the current UY?

OP- I’m in a similar thinking situation. I do not need points for 2024 or possibly not even 2025. Another thought is to wait it out… contracts will also be on the resale market.

 

[DebbieB]

1 bought VGC in January 2020 with 1 point in April 2020. I already had my plans for 2020 so I didn’t need the points. No dues for 2020 and ended up at the end of 2020, I got the dues credit for the following year for time closed.

 

[AstroBlasters]

If the value of the points from each year was the rental cost less the cost of the dues, people should be paying much more than ~$100 for Aulani (unsubsidized). By that math, a price of $200 could also be easily justified. On one hand, buyers want to pay $90 for a 40 year Aulani contract, but then if one year is missing they want to pay $70. Something seems somewhat off in that math.

I think you added this part in, but I wanted to address it because it’s one of the reasons why I loaded up on AUL points. (Unrelated to stripped/loaded ppp discussion).

I was sitting in an $1200+/night Parlor Suite (kind of like an 1Bd villa without a kitchen) and comparing the cost to rent points vs the cost of buying. I would have rented, but it was a somewhat last minute trip and so there wasn’t inventory. There were also no rack rate discounts on Parlor Villas.

Renting and buying were both significantly better deals than paying cash and the break even for buying was 7-8 years at $100pp.

I looked at the unsubsidized, but wanted to buy enough upfront points to get a 2BD ocean front every year (600 points) or a Grand Villa every other year and didn’t want to pay an additional $22k out of pocket because I would have had to finance.

Given that I could sell the contract for practically what I paid for it less broker commissions and closing costs I still feel like it’s a steal of a deal IF you are going to use them at Aulani. If we only use these contracts for 10 years we could still end up in a great spot.

 

[CarolynFH]

I just noticed my typo in the title. Could a moderator fix that for me.

Just click the Edit button in the lower left of your first post. That allows you to edit the subject line too.

I have nothing to add to the “real” discussion!

 

[tom1944]

Just click the Edit button in the lower left of your first post. That allows you to edit the subject line too.

I have nothing to add to the “real” discussion!

Thank you

 

[HyperspaceMountainPilot]

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.

 

[Genie+]

The idea loaded contracts are undervalued could stem from buyer often not paying dues on banked points.

Typically buyers don’t pay more than 1 year of dues at closing. Maybe I missed it but never heard of paying 2 years of dues. Banked points can end up with no dues paid.

A further consideration is the current month and UY.

What’s the difference between buying a loaded Oct UY today or in Feb. Same amount of points exist, just 3 months later. if I buy that loaded Oct UY today, I’d likely reimburse seller for the current year of dues and then pay 2024 dues as the new owner of contract. If I wait to buy until Feb and reimburse a year of dues, 2024 dues are now paid as I become owner.