Opinions on Buying Stripped Contracts

[arthur06]

Originally Posted by Kidanifan08

I agree. For a contract like this, you would think $50/pt would be a winner for the seller. But, a $1000 difference is probably not worth quibbling about if you just need 125 BWV points to go to F&W every year or EOW; starting in 2014 or 2015, of course.

To me, it's a gamble. Can't close until May 2013. Wait another 8 months and see what the resale market does. You could potentially buy a better contract in 8 months (and possibly today) that has current points and possibly banked points as well for the same price.

I have a small BWV contract that has points, I could ask for big $$$ with some of these buyers.

[ELMC]

One thing I've learned from reading these boards is that different people have different motivations. If your motivation is to get a good deal, or if you are at all driven by the math behind the contract, then typically speaking you should probably stay away from stripped contracts.

However, there are people on here who have different reasons for buying. Maybe it's the perfect size/UY. Maybe they're not going on vacation until 2014 anyway and they don't want the hassle of renting out points. It could be any number of things. If this describes you, and you see a contract you want, then some would say to just go for it regardless of how much of a deal it is or isn't. (I can't say that because I'm still held captive by the numbers). Keep in mind that even with a stripped contract, you're probably still saving money by buying resale. Although it's not how I look at things, I've figured out that there is a lot more that goes into buying a resale contract than just the math. So figure out what type of buyer you are, and you'll have your answer.

And remember, only one person can get the best deal, everyone else overpaid.

[belias21]

Originally Posted by ELMC

One thing I've learned from reading these boards is that different people have different motivations. If your motivation is to get a good deal, or if you are at all driven by the math behind the contract, then typically speaking you should probably stay away from stripped contracts.

However, there are people on here who have different reasons for buying. Maybe it's the perfect size/UY. Maybe they're not going on vacation until 2014 anyway and they don't want the hassle of renting out points. It could be any number of things. If this describes you, and you see a contract you want, then some would say to just go for it regardless of how much of a deal it is or isn't. (I can't say that because I'm still held captive by the numbers). Keep in mind that even with a stripped contract, you're probably still saving money by buying resale. Although it's not how I look at things, I've figured out that there is a lot more that goes into buying a resale contract than just the math. So figure out what type of buyer you are, and you'll have your answer.

And remember, only one person can get the best deal, everyone else overpaid.

Maybe it's just me, but I must really be missing something on the "math" side of this. Worst case I see is that you might be paying for a year you're not using. Regardless, this is a 30 year (at least) investment so it really means nothing beyond that first "stripped" period.

I've seen mention on this thread that stripped contracts should be worth $20 or $30 less per point, but I guess I'm not understanding that. I'm paying $54/pt for my stripped OKW contract. Per point dollar amounts haven't really gone any lower than that (and gotten through ROFR) so I guess I'm missing something.

Not trying to spark a debate, just trying to get a better understanding so I know for next time.

[ELMC]

Originally Posted by belias21

Maybe it's just me, but I must really be missing something on the "math" side of this. Worst case I see is that you might be paying for a year you're not using. Regardless, this is a 30 year (at least) investment so it really means nothing beyond that first "stripped" period.

I've seen mention on this thread that stripped contracts should be worth $20 or $30 less per point, but I guess I'm not understanding that. I'm paying $54/pt for my stripped OKW contract. Per point dollar amounts haven't really gone any lower than that (and gotten through ROFR) so I guess I'm missing something.

Not trying to spark a debate, just trying to get a better understanding so I know for next time.

No worries, you're not being argumentative at all. Let's leave ROFR aside for a moment because that is a whole different variable. (Although I will grant you that lower price OKW contracts have not passed whereas many higher priced contracts have passed). That being said, here is a real life example comparing two OKW contracts (yours and mine). Full disclosure, mine did in fact get taken by ROFR (at $41pp). I'm also going to leave closing costs out of the example to make sure we are comparing apples to apples. Also, even though my contract offer was for less than $54 a point, I am going to use that price in both examples to insure that I'm still comparing apples to apples.

My contract: $54 pp. Seller pays maintenance fees and the contract had full 2011 and 2012 points. So my out of pocket cost was $5,400 and I can then rent the 2011 and 2012 points for $10 each, bringing my total net cost of the contract down to $3,400. The next time I will be able to use points is in 2013.

Your contract: $54pp. I'm assuming that the seller paid the maintenance fees as well because they used the points. Your out of pocket cost is $5,400, and the next time you will be able to use points is 2013.

So as you can see, a stripped contract is significantly more expensive than a non stripped one, in this case $2,000 more. Had I been able to find a contract with 2010 points as well, the difference would have been more like $3,000. So that's the explanation of the "math" perspective of buying. But like I said before, for many people there is a lot more to it than the math, which is totally understandable.

One thing you did say that I respectfully disagree with though is when you alluded to the fact that it's not that big of a deal over 30 years. While I can see how you would say that, it's a somewhat fallacious argument because although you own this contract for 30 years, you are paying for it right now. So it's not $2,000 over 30 years, it's $2,000 cash right now in today's dollars.

That being said, I think it's ok to pay a little more if you're getting what you want. You're still saving money by buying resale and, like I always say, only one person can get the best deal. Everyone else overpaid.

[Marionnette]

I just wanted to pop back into this thread and thank everyone for their input. It really gives great insight into the buyer's POV on stripped contracts.

I was asking this question for my brother, who is considering the sale of his SSR contract. He stripped it of all his 2013 points to use for a big vacation this past year. He's having a tough time post-divorce and figured that since the kids didn't really enjoy this last trip, maybe he should just sell the contract and use the cash to pay some bills. But from the looks of things, he would have to under-value the points considerably in order to sell it. He still has the mortgage to pay off, so he can't go too low.

I think that I'll point him to this thread, but also encourage him to rent out his points instead of selling at this time. Thanks again for the opinions!

[belias21]

Originally Posted by ELMC

No worries, you're not being argumentative at all. Let's leave ROFR aside for a moment because that is a whole different variable. (Although I will grant you that lower price OKW contracts have not passed whereas many higher priced contracts have passed). That being said, here is a real life example comparing two OKW contracts (yours and mine). Full disclosure, mine did in fact get taken by ROFR (at $41pp). I'm also going to leave closing costs out of the example to make sure we are comparing apples to apples. Also, even though my contract offer was for less than $54 a point, I am going to use that price in both examples to insure that I'm still comparing apples to apples.

My contract: $54 pp. Seller pays maintenance fees and the contract had full 2011 and 2012 points. So my out of pocket cost was $5,400 and I can then rent the 2011 and 2012 points for $10 each, bringing my total net cost of the contract down to $3,400. The next time I will be able to use points is in 2013.

Your contract: $54pp. I'm assuming that the seller paid the maintenance fees as well because they used the points. Your out of pocket cost is $5,400, and the next time you will be able to use points is 2013.

So as you can see, a stripped contract is significantly more expensive than a non stripped one, in this case $2,000 more. Had I been able to find a contract with 2010 points as well, the difference would have been more like $3,000. So that's the explanation of the "math" perspective of buying. But like I said before, for many people there is a lot more to it than the math, which is totally understandable.

One thing you did say that I respectfully disagree with though is when you alluded to the fact that it's not that big of a deal over 30 years. While I can see how you would say that, it's a somewhat fallacious argument because although you own this contract for 30 years, you are paying for it right now. So it's not $2,000 over 30 years, it's $2,000 cash right now in today's dollars.

That being said, I think it's ok to pay a little more if you're getting what you want. You're still saving money by buying resale and, like I always say, only one person can get the best deal. Everyone else overpaid.

Thank you for the response, I appreciate the detail...

I don't know - your points are certainly valid but I'm struggling with the fact that, just because you might be able to rent a year out, that the seller of a stripped contract should be expected to account for that and adjust their price accordingly. Maintenance fee negotiation?? By all means, yes... that is an annual cost so that makes sense.

It's $5400 worth of points no matter how you look at it. If anything, divide that by the number of years left ($5400/30 = $180) and negotiate a little based on that since a stripped contract might have one fewer year.

If you're able to rent a year out because you don't have travel plans to use the first batch of points on a loaded contract - more power to you, and there is a definite financial advantage to doing that.

Like you said, everyone's situation is unique... The way I look at it, I saved a TON of money by not buying a loaded contract. If I had the points to use, we would probably have ended up planning an additional trip versus renting them. We all know how much more THAT would have costed. I guess points burn a hole in our pockets.

[jennybdis]

I looked this morning and saw the sale was pending.

We are planning to buy next spring, which is one reason why I liked the closing date, but I would rather pay $5 more pp for something I can use in 2013 (and hopefully will have some points available upon closing). I'm definitely not upset about losing this one--a better contract will surely be available next spring.

[DougEMG]

Originally Posted by Marionnette

I just wanted to pop back into this thread and thank everyone for their input. It really gives great insight into the buyer's POV on stripped contracts.

I was asking this question for my brother, who is considering the sale of his SSR contract. He stripped it of all his 2013 points to use for a big vacation this past year. He's having a tough time post-divorce and figured that since the kids didn't really enjoy this last trip, maybe he should just sell the contract and use the cash to pay some bills. But from the looks of things, he would have to under-value the points considerably in order to sell it. He still has the mortgage to pay off, so he can't go too low.

I think that I'll point him to this thread, but also encourage him to rent out his points instead of selling at this time. Thanks again for the opinions!

As a seller I would always try and sell my contract with the points stripped out and a couple of dollars less than what other contracts are selling for. After all, it only takes that one person to buy it. Remembe that having people over value stipped contracts is good when you are the seller!

[DougEMG]

Originally Posted by belias21

Thank you for the response, I appreciate the detail...

I don't know - your points are certainly valid but I'm struggling with the fact that, just because you might be able to rent a year out, that the seller of a stripped contract should be expected to account for that and adjust their price accordingly. Maintenance fee negotiation?? By all means, yes... that is an annual cost so that makes sense.

It's $5400 worth of points no matter how you look at it. If anything, divide that by the number of years left ($5400/30 = $180) and negotiate a little based on that since a stripped contract might have one fewer year.

If you're able to rent a year out because you don't have travel plans to use the first batch of points on a loaded contract - more power to you, and there is a definite financial advantage to doing that.

Like you said, everyone's situation is unique... The way I look at it, I saved a TON of money by not buying a loaded contract. If I had the points to use, we would probably have ended up planning an additional trip versus renting them. We all know how much more THAT would have costed. I guess points burn a hole in our pockets.

The stripped contract worked out to be a good deal for you because it met your requirements/needs. For someone who's main goal is to spend as little money as possible, then buying a loaded contract and renting out those extra points will nearly always work out to be the best option.

It all comes down to how much are you paying for those extra points and how much are valuing those extra points.

If you end up paying the MF and then using the points yourself, that is a net of zero, but if you paid no MF and rent them out for $11/point, you've reduced your cost by $11/point.

[cz4ever]

Originally Posted by Marionnette

I just wanted to pop back into this thread and thank everyone for their input. It really gives great insight into the buyer's POV on stripped contracts.

I was asking this question for my brother, who is considering the sale of his SSR contract. He stripped it of all his 2013 points to use for a big vacation this past year. He's having a tough time post-divorce and figured that since the kids didn't really enjoy this last trip, maybe he should just sell the contract and use the cash to pay some bills. But from the looks of things, he would have to under-value the points considerably in order to sell it. He still has the mortgage to pay off, so he can't go too low.

I think that I'll point him to this thread, but also encourage him to rent out his points instead of selling at this time. Thanks again for the opinions!

Actually, the point should be that he would NOT have to under-value the points considerably in order to sell it. He would if he wanted the sharks here to make an offer, but as illustrated by the fact that the completely stripped BWV contract sold at its asking price of $60 within days of listing, the general DVC buyer pool does not differentiate between stripped and loaded contracts nearly as much as "us".

Although I'm sure Disney would step in and put a stop to the practice if anybody tried to do it, there's money to be made buying loaded contracts, stripping them, and selling the resulting stripped contracts for a little bit less.

[AllieV]

You will get far different advice if you identify as a seller vs buyer. No one here will advise you to buy a stripped contact. But plenty will tell you how easy it can be to sell one. Don't be discouraged (or your bro).

I watched a "$90 firm" AKV contract sit for months until finally it sold. I assume it sold (not taken off) because a newbie was on here talking about buying a small contract and how they'd found one for $90 and although it was high, it was still slightly less than going direct through disney. It disappeared a week later, as did another identical one. Right after that two more appeared (different number of points but still small) for "$90 firm" and one sold within a week. The other is still sitting.

So it can be done. He only pays a fee if it sells, so he has nothing to lose.

[Dean]

Originally Posted by belias21

Maybe it's just me, but I must really be missing something on the "math" side of this. Worst case I see is that you might be paying for a year you're not using. Regardless, this is a 30 year (at least) investment so it really means nothing beyond that first "stripped" period.

I've seen mention on this thread that stripped contracts should be worth $20 or $30 less per point, but I guess I'm not understanding that. I'm paying $54/pt for my stripped OKW contract. Per point dollar amounts haven't really gone any lower than that (and gotten through ROFR) so I guess I'm missing something.

Not trying to spark a debate, just trying to get a better understanding so I know for next time.

There are several factors and questions. Whether to buy, if so retail vs resale. Assuming buying DVC is a good choice (it isn't for everyone even some that buy in) and that one has decided on resale and a preferred home resort, it simply comes down to price and comparing one contract to another. IMO the most reasonable comparison for stripped contracts is an adjustment of $10 a point for each current UY or future UY point that's not available and that number includes the maint fees if the buyer is paying the fees for the current and future UY. Obviously one needs to look at the big picture including the sheer dollars involved as a 25 point contract will have a lot less impact than a much larger contract. Put another way, one could buy a smaller loaded contract and do as well or better and more cheaply than a larger completely stripped one. In a post below you take the price paid and divide by the remaining years, IMO, that shortchanges the buying power and value of your dollars into the future. Personally $1-2K would be a big deal for me but it might not be for someone else.

[lodge]

Originally Posted by ELMC

One thing I've learned from reading these boards is that different people have different motivations.

Our motivation has always been to PLAN... plan, plan, and plan some-more! I often NEED a year out to get all the other travels out of the way! If you have all this year and half of next booked up with holidays (vacations), a later starting to a contract works best.... no worries about paying MF's.

I have deposits on vacations well into the end of 2015! BIG, expensive trips that require a lot of time to pay down. When they roll around, they are SUCH FUN!!