Help Aulani Subsidized owners

[DanCali]

Hate to bring up an old thread, but it seems more appropriate here then starting a new thread...

How can you tell if a contract is subsidized when shopping for contracts.? Most places don't specify, & it seems the price per point isn't that far off to be a good search criteria either.

What I did is, once I had the sales contract with the seller's name, I went to the Hawaii Bureau of Conveyances website (https://bocdataext.hi.wcicloud.com/- requires registration) and tracked down the original DVC deed by all the prior owners so I can see that it originated prior to July 6, 2011. It'll most likely be your seller and one prior owner. The main things you can go by are grantor/grantee name, and also number of points, and use year which are in the contract.

I had a seller who had literally dozens of deeds there many with the same use year and the broker refused to point me to the correct one due to "privacy reasons". It was also hard with that many deeds because the deeds you pull up are blurred on purpose (cost money to buy clean version) so it takes a bit of time to decipher the info. I walked away from that one...

 

[DanCali]

Also at what point does a subsidized contract pay off or break even for price per point.?
For instance... Is $135 the same as $105 after 25 years? (my brain wont even let me figure out the equation to do the math myself. lol)

It really depends on various assumptions. Subsidized saves you close to $2.5/point annually, but that savings number increases each year as dues rise. Savings are 25% - if dues were $12/point, subsidized dues would be $9/point. So in 12 years, you can say you "break even" in your example, but it may be a bit less.

But that's not really the only way to think about it because the subsidized contract will presumably always have a higher residual value if you sell it. If you save $2.5/point annually for 5 years, but then sell it in 5 years for $30/point more than an unsubsidized contract (say $125 vs $95), you can still come out ahead because of the savings on the dues. Both contracts had a $10/point capital loss but you saved over $12/point in dues over 5 years. So if you don't hold it to maturity, as most owners, it also depends on your assumptions on residual value...

 

[AstroBlasters]

Also at what point does a subsidized contract pay off or break even for price per point.?
For instance... Is $135 the same as $105 after 25 years? (my brain wont even let me figure out the equation to do the math myself. lol)

1) do you assume you will earn 0% on your money that you would save by buying an unsubsidized contract? I would suggest to you that you can easily build a risk free CD or treasury ladder paying 4-5% right now.
2) You can get get an unsubsidized for well under $105…. Don’t go over $95pp.
3) Unsubsidized you can get fully loaded, subsidized are often stripped.
4) I ran a spreadsheet in a previous thread comparing subsidized stripped @ $130 to unsubsidized at $95 and the breakeven was 22 years to never depending on your IRR on the lower buyin that could be used to pay the delta in dues.
5) Do not overpay for the subsidized, the selling agents are counting on your not doing the math. There is no guarantee that people in the future will do the same thing.

 

[KalamityJane]

1) do you assume you will earn 0% on your money that you would save by buying an unsubsidized contract? I would suggest to you that you can easily build a risk free CD or treasury ladder paying 4-5% right now.
2) You can get get an unsubsidized for well under $105…. Don’t go over $95pp.
3) Unsubsidized you can get fully loaded, subsidized are often stripped.
4) I ran a spreadsheet in a previous thread comparing subsidized stripped @ $130 to unsubsidized at $95 and the breakeven was 22 years to never depending on your IRR on the lower buyin that could be used to pay the delta in dues.
5) Do not overpay for the subsidized, the selling agents are counting on your not doing the math. There is no guarantee that people in the future will do the same thing.

I ran similar numbers and came to the same conclusion. Ended up with a heck of a deal on an unsub loaded AUL.

 

[AstroBlasters]

I ran similar numbers and came to the same conclusion. Ended up with a heck of a deal on an unsub loaded AUL.

A great deal on Aulani points will have you sitting pretty!

 

[lilsonicfan]

@AstroBlasters What do you put to request the long balconies rather than triangle shaped, and are those all Ocean Views?

 

[AstroBlasters]

@AstroBlasters What do you put to request the long balconies rather than triangle shaped, and are those all Ocean Views?

I’m in a Grand Villa, which are all Ocean Front (different than Ocean View). Our only request was Highest floor possible.

 

[emchen]

1) do you assume you will earn 0% on your money that you would save by buying an unsubsidized contract? I would suggest to you that you can easily build a risk free CD or treasury ladder paying 4-5% right now.
2) You can get get an unsubsidized for well under $105…. Don’t go over $95pp.
3) Unsubsidized you can get fully loaded, subsidized are often stripped.
4) I ran a spreadsheet in a previous thread comparing subsidized stripped @ $130 to unsubsidized at $95 and the breakeven was 22 years to never depending on your IRR on the lower buyin that could be used to pay the delta in dues.
5) Do not overpay for the subsidized, the selling agents are counting on your not doing the math. There is no guarantee that people in the future will do the same thing.

1. If we consider what we do with savings on opportunity costs on any other comparable purchase...car, luxury watches or handbags, etc. How many of us put savings into a CD or Treasury Ladder? Not me and I'll bet I'm in the majority of DVC'ers.
2. No argument but I've seen a lot of members go over $95pp in the ROFR thread.
3. YMMV.
4. When I ran my spreadsheet using different assumptions and strategies, my breakeven was 7 years.
5. Generally good advice for all contracts.

 

[AstroBlasters]

1. If we consider what we do with savings on opportunity costs on any other comparable purchase...car, luxury watches or handbags, etc. How many of us put savings into a CD or Treasury Ladder? Not me and I'll bet I'm in the majority of DVC'ers.
2. No argument but I've seen a lot of members go over $95pp in the ROFR thread.
3. YMMV.
4. When I ran my spreadsheet using different assumptions and strategies, my breakeven was 11 years.
5. Generally good advice for all contracts.

I think a better example (although imperfect) would be comparing two automobiles that were the same in every way except that one was a hybrid with better gas mileage and the other was a gas only (ignore impact of CO2 emissions).

How much more is the hybrid worth? It depends on the savings in gas mileage and how long you tend to keep your cars.

If you save $1,000 per year in gas then it probably wouldn’t make sense for most people to pay $10,000 more for the hybrid car if they usually don’t keep the cars for 10 years.

To stretch the example further, it’s pretty easy to find a unsubsidized contract with current years points, most (but not all) of the unsubsidized contracts coming on the market are stripped of this years and next years points. So, you are actually getting a lot less value for your money and a penalty should be applied to the prices. IMO, $130pp double stripped contract is easily equivalent to a $150pp unstripped.

So, a median $95pp unsubsidized compared to a normalized $150pp subsidized is a $55pp spread. Given a dues delta of $2.27pp, that is a 24 year breakeven (slightly less if you take into account a 5% dues increase).

Now, in actual hard dollars the difference per point would be $130-$95= $35pp, so $7,000 on a 200 point contract. That is real money that could very easily be plopped into a Fidelity account and put into a risk free CD or UST ladder paying north of 4% -5% and that interest will push out the break even further. Even if it is not directly, it will in theory replace money that would have been spent elsewhere that still leaves more money in an account earning something.

Now, there is a contract in ROFR that is double loaded, not a large number of points for $123 a point. THAT is a fabulous contract IMO. Given that it has last years point banked in addition to this years points that is a normalized $113 or $18pp over a typical $95 unsubsidized that has this years points but nothing banked from last year. That’s about an 8ish year break even (without counting interest on savings or the increase in dues delta). I’d take that deal all day long as it is within the normal holding period of most DVC owners.

 

[DanCali]

1) do you assume you will earn 0% on your money that you would save by buying an unsubsidized contract? I would suggest to you that you can easily build a risk free CD or treasury ladder paying 4-5% right now.
2) You can get get an unsubsidized for well under $105…. Don’t go over $95pp.
3) Unsubsidized you can get fully loaded, subsidized are often stripped.
4) I ran a spreadsheet in a previous thread comparing subsidized stripped @ $130 to unsubsidized at $95 and the breakeven was 22 years to never depending on your IRR on the lower buyin that could be used to pay the delta in dues.
5) Do not overpay for the subsidized, the selling agents are counting on your not doing the math. There is no guarantee that people in the future will do the same thing.

With all due respect, I like to run my own numbers When I do that, I believe the subsidized (unstripped) contract should be in the $150-$160 range as a fair price, and that's probably even conservative. That may be an unconventional thought, but I'll justify that below with a very simple analysis, but it does require understanding net present value calculations. Take a look at tell me where I went wrong

There are many assumptions people can make about opportunity cost, treasury rates, whether people are overpaying or underpaying for the subsidy now, and whether that will reverse in the future. But you can ask a very simple question and make very simple assumptions. Consider 100 points as an example...

(i) The value of the dues savings for 100 points in 2023 is $227 - that's an uncontroversial starting point.
(ii) Assume dues grow at 3% per year which also means the dues savings grow by 3% per year (picked a low number, which biases the analysis I'm about to do against subsidized since the dues savings don't grow as fast)
(iii) Pick an opportunity cost - say 5% as you cite - and use that to discount all the future cash flows to get everything in present value terms

There are only 2 variables here - the percentage annual increase in dues (which is also the percentage increase in dues savings each year) and the opportunity cost, which you use to discount the dues savings cash flow stream from 2023 to 2061... So what is that stream of cash flows (dues savings till 2061) worth to you today in present value terms given your opportunity cost you picked? That number will be (up to) the extra amount you should be willing to pay for the Aulani subsidized contract...

The answer to that with 3% dues savings increase and 5% opportunity cost is $6288 (that's the present value of cash flows starting at $227 in 2023, growing at 3% annually to $698 in 2061 and discounted at 5%). That means, that for 100 points, you should be willing to pay about $63/point more for the subsidized contract. Now if the subsidized contract is stripped vs the unsubsidized one, you can say you rent out those extra points from the unstripped contract for $10-$12/point (above annual dues, which you'd have to pay) so that brings does the premium for the subsidized contract from $63 to around $40-$45 per point, not far from where we are today. So, I agree with you on the loss of value from stripping, just not about the fair value of the subsidy itself. If anything, people are slightly underpaying for stripped subsidized contracts at $130.

You can also do some sensitivity analysis around the 3% and 5% numbers. The more the dues increase, the greater present value of the subsidy. The greater the opportunity cost, the less the value of the subsidy (because the dues savings are worth less in present value terms). Here is what you get for various values. Note that with 5% dues increase (a number you mentioned in your most recent post) the subsidy value with 5% opportunity cost goes up from $62.88 to $88.53/point.

 

[Chili327]

1) do you assume you will earn 0% on your money that you would save by buying an unsubsidized contract? I would suggest to you that you can easily build a risk free CD or treasury ladder paying 4-5% right now.
2) You can get get an unsubsidized for well under $105…. Don’t go over $95pp.
3) Unsubsidized you can get fully loaded, subsidized are often stripped.
4) I ran a spreadsheet in a previous thread comparing subsidized stripped @ $130 to unsubsidized at $95 and the breakeven was 22 years to never depending on your IRR on the lower buy-in that could be used to pay the delta in dues.
5) Do not overpay for the subsidized, the selling agents are counting on your not doing the math. There is no guarantee that people in the future will do the same thing.

Exactly what I'm thinking, as much as I want to pay less in dues each year, id just rather get them cheaper now & a much "better" deal. (I'm cool with stripped too)

1. If we consider what we do with savings on opportunity costs on any other comparable purchase...car, luxury watches or handbags, etc. How many of us put savings into a CD or Treasury Ladder? Not me and I'll bet I'm in the majority of DVC'ers.
2. No argument but I've seen a lot of members go over $95pp in the ROFR thread.
3. YMMV.
4. When I ran my spreadsheet using different assumptions and strategies, my breakeven was 11 years.
5. Generally good advice for all contracts.

Yea I'd be looking at anything under $90 AND small contract (so it wont be super available)

 

[Chili327]

With all due respect, I like to run my own numbers When I do that, I believe the subsidized (unstripped) contract should be in the $150-$160 range as a fair price, and that's probably even conservative. That may be an unconventional thought, but I'll justify that below with a very simple analysis, but it does require understanding net present value calculations. Take a look at tell me where I went wrong

There are many assumptions people can make about opportunity cost, treasury rates, whether people are overpaying or underpaying for the subsidy now, and whether that will reverse in the future. But you can ask a very simple question and make very simple assumptions. Consider 100 points as an example...

(i) The value of the dues savings for 100 points in 2023 is $227 - that's an uncontroversial starting point.
(ii) Assume dues grow at 3% per year which also means the dues savings grow by 3% per year (picked a low number, which biases the analysis I'm about to do against subsidized since the dues savings don't grow as fast)
(iii) Pick an opportunity cost - say 5% as you cite - and use that to discount all the future cash flows to get everything in present value terms

There are only 2 variables here - the percentage annual increase in dues (which is also the percentage increase in dues savings each year) and the opportunity cost, which you use to discount the dues savings cash flow stream from 2023 to 2061... So what is that stream of cash flows (dues savings till 2061) worth to you today in present value terms given your opportunity cost you picked? That number will be (up to) the extra amount you should be willing to pay for the Aulani subsidized contract...

The answer to that with 3% dues savings increase and 5% opportunity cost is $6288 (that's the present value of cash flows starting at $227 in 2023, growing at 3% annually to $698 in 2061 and discounted at 5%). That means, that for 100 points, you should be willing to pay about $63/point more for the subsidized contract. Now if the subsidized contract is stripped vs the unsubsidized one, you can say you rent out those extra points from the unstripped contract for $10-$12/point (above annual dues, which you'd have to pay) so that brings does the premium for the subsidized contract from $63 to around $40-$45 per point, not far from where we are today. So, I agree with you on the loss of value from stripping, just not about the fair value of the subsidy itself. If anything, people are slightly underpaying for stripped subsidized contracts at $130.

You can also do some sensitivity analysis around the 3% and 5% numbers. The more the dues increase, the greater present value of the subsidy. The greater the opportunity cost, the less the value of the subsidy (because the dues savings are worth less in present value terms). Here is what you get for various values. Note that with 5% dues increase (a number you mentioned in your most recent post) the subsidy value with 5% opportunity cost goes up from $62.88 to $88.53/point.


View attachment 786393

$150 is way overpaying, nowhere near fair priced. according to recent sales. (but maybe you're saying in comparison to unsubsidized, not reality of sales?)

 

[AstroBlasters]

With all due respect, I like to run my own numbers When I do that, I believe the subsidized (unstripped) contract should be in the $150-$160 range as a fair price, and that's probably even conservative. That may be an unconventional thought, but I'll justify that below with a very simple analysis, but it does require understanding net present value calculations. Take a look at tell me where I went wrong

There are many assumptions people can make about opportunity cost, treasury rates, whether people are overpaying or underpaying for the subsidy now, and whether that will reverse in the future. But you can ask a very simple question and make very simple assumptions. Consider 100 points as an example...

(i) The value of the dues savings for 100 points in 2023 is $227 - that's an uncontroversial starting point.
(ii) Assume dues grow at 3% per year which also means the dues savings grow by 3% per year (picked a low number, which biases the analysis I'm about to do against subsidized since the dues savings don't grow as fast)
(iii) Pick an opportunity cost - say 5% as you cite - and use that to discount all the future cash flows to get everything in present value terms

There are only 2 variables here - the percentage annual increase in dues (which is also the percentage increase in dues savings each year) and the opportunity cost, which you use to discount the dues savings cash flow stream from 2023 to 2061... So what is that stream of cash flows (dues savings till 2061) worth to you today in present value terms given your opportunity cost you picked? That number will be (up to) the extra amount you should be willing to pay for the Aulani subsidized contract...

The answer to that with 3% dues savings increase and 5% opportunity cost is $6288 (that's the present value of cash flows starting at $227 in 2023, growing at 3% annually to $698 in 2061 and discounted at 5%). That means, that for 100 points, you should be willing to pay about $63/point more for the subsidized contract. Now if the subsidized contract is stripped vs the unsubsidized one, you can say you rent out those extra points from the unstripped contract for $10-$12/point (above annual dues, which you'd have to pay) so that brings does the premium for the subsidized contract from $63 to around $40-$45 per point, not far from where we are today. So, I agree with you on the loss of value from stripping, just not about the fair value of the subsidy itself. If anything, people are slightly underpaying for stripped subsidized contracts at $130.

You can also do some sensitivity analysis around the 3% and 5% numbers. The more the dues increase, the greater present value of the subsidy. The greater the opportunity cost, the less the value of the subsidy (because the dues savings are worth less in present value terms). Here is what you get for various values. Note that with 5% dues increase (a number you mentioned in your most recent post) the subsidy value with 5% opportunity cost goes up from $62.88 to $88.53/point.


View attachment 786393

I was with you up until the second to last paragraph. When I ran a side by side year by year cash flow analysis comparing the two I was looking for the year I broke even, and I was using a more aggressive dues increase of 5% per year.

 

[DanCali]

$150 is way overpaying, nowhere near fair priced. according to recent sales. (but maybe you're saying in comparison to unsubsidized, not reality of sales?)

Yes, subsidized contracts vs unsubsidized. If I didn't have over 500 subsidized Aulani points, I'd be buying more...

My main point is that people are actually undervaluing the value of the subsidy because the even stripped contracts at $130 are a great value under reasonable assumptions. Don't take that as financial advice - it's just my opinion. If my calculations are wrong or incomplete, perhaps someone will point that out.

But again, it all depends on assumptions you make. Look the the table in my prior post - if you don't think a subsidized contract is worth a $35/point premium, that just implies you think dues will grow at 3% or less AND that your implied opportunity cost is 9% or higher.

 

[DanCali]

I was with you up until the second to last paragraph. When I ran a side by side year by year cash flow analysis comparing the two I was looking for the year I broke even, and I was using a more aggressive dues increase of 5% per year.

I just have 1 column in my calculations - the dues savings. Everything else is captured by using the opportunity cost (you pick the number) to get the present value of the dues savings. That amount should be (in theory) the delta in upfront cost between the two contracts, under the only two assumptions made - annual increase in dues and opportunity cost..

 

[AstroBlasters]

I just have 1 column in my calculations - the dues savings. Everything else is captured by using the opportunity cost (you pick the number) to get the present value of the dues savings. That amount should be (in theory) the delta in upfront cost between the two contracts, under the only two assumptions made - annual increase in dues and opportunity cost..


View attachment 786401

Try running a year by year spreadsheet comparing the two using your assumptions and see when the breakeven is.

I’m sitting on my balcony at Aulani looking at the ocean and don’t have access to a computer or I would rerun the numbers myself.

 

[DVC Newb '23]

Yes, subsidized contracts vs unsubsidized. If I didn't have over 500 subsidized Aulani points, I'd be buying more...

My main point is that people are actually undervaluing the value of the subsidy because the even stripped contracts at $130 are a great value under reasonable assumptions .

Fidelity has an unstriped 250 point contract listed at $125 now and had an identical one earlier this week for $120. I haven’t seen subsidized contract even listed over $137 lately.

 

[emchen]

Fidelity has an unstriped 250 point contract listed at $125 now and had an identical one earlier this week for $120. I haven’t seen subsidized contract even listed over $137 lately.

@DanCali analysis so enabling! The 250 point subsidized contract...so tempting, the feb uy is not one I have right now, but would use it to fund the habit anyways...so tempting. Lmao!

 

[DanCali]

Fidelity has an unstriped 250 point contract listed at $125 now and had an identical one earlier this week for $120. I haven’t seen subsidized contract even listed over $137 lately.

@DanCali analysis so enabling! The 250 point subsidized contract...so tempting, the feb uy is not one I have right now, but would use it to fund the habit anyways...so tempting. Lmao!

For us Aulani are SAPs, although we're planning to go there next summer as part of a graduation trip for our daughter.

I agree it's tempting, but don't need more points, let alone a third use year. I feel like we have a good mix now with two use years and ~50% of our points at Aulani and ~50% at WDW at 3 resorts. If I add anything, it may be a couple of 50-75 point contracts at WDW at some of the resorts that are harder to get at 7 months. Our WDW trips are short and we can go for weekends on short notice (2 hour drive) so this mix works well for us. It may not work as well for others.

 

[emchen]

I was with you up until the second to last paragraph. When I ran a side by side year by year cash flow analysis comparing the two I was looking for the year I broke even, and I was using a more aggressive dues increase of 5% per year.

If anything, people are slightly underpaying for stripped subsidized contracts at $130.

I'm totally with you on this @DanCali!

My untrained spread-sheeting most closely resembles your NPV calculations without the percentage premiums and discounts assigned to those two variables (3-5% increase in dues and 5% increase in opportunity costs over time respectively).

For my particular case in 2019, unsub AUL could be had for $95 as well, 217 subsidized contract purchased at $110 pp, using above @AstroBlasters definition of "break-even", I got 5.6 years). My recently purchased 477 point contract (to close in feb 2024) projects to 7yr break even using same method.