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Depreciation???

trice01

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Please excuse my business ignorance.

I always figured that by buying a timeshare resale, the inflated costs of marketing, promotion and developer's margin were already taken off the discounted resale price. Based on that assumption, I always figured that I would at least get back my discounted resale cost when I sold, maybe even a little inflationary increase. Using that logic, I assumed my cost of use was the opportunity cost of the purchase plus maint, taxes and other ongoing costs.

Now I hear Tuggers saying that we should accept depreciation as part of our ownership, and expect little or nothing after long ownership. Maybe I'm naive, but I have always expected well maintained real estate to appreciate over time. That's nearly univerally true of residential. I know it is normal business practice to depreciate biz assets for tax purposes, but in reality I think most business real estate is sold for a profit after inflationary increases.

Am I way off base here, or are other people just trying to justify a mysteriously sinking resale market?
 

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You are absolutely on target for traditional real estate. Timeshares don't fit that definition.

The typical timeshare resale price hasn't appreciated at all in recent years. It’s anyone’s guess as to what will happen in the future. Will ever-mushrooming developer sales depress the resale market even more? Or will consumers become wise shoppers and gravitate more to the resale market, propping up prices and creating some appreciation? You tell me because I don't know.

There are some timeshares that have appreciated in value. However, that appreciation has generally been at a very, very slow pace. If the past is a fortune teller, the future appreciation pace will be slow enough that you likely won't make a net
profit (after reasonable selling expenses) after holding the timeshare for 10 years.

There are a very few timeshares, notably some - but not all - timeshares that have hotel brand names, that have appreciated more rapidly. However, predicting which ones will appreciate in the future is just a guess.

There are also a very few TUGgers who know the market so well and who have honed their negotiation skills so well that they can buy a timeshare today and resell it tomorrow for a profit. I doubt that I will ever be in their league.

Depreciation (reduction in value) is a given for developer purchases. It's also very common for resale purchases. Whether you will reap a profit or incur a loss on sale is something you likely won't know until you sell.
 
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AwayWeGo

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Mox Nix.

Whether you will reap a profit or incur a loss on sale is something you likely won't know until you sell.
If buying timeshares low on the resale market gets you years & years of vacations in luxury accommodations for roughly Motel 6 & Super 8 costs, then it's mox nix whether you get anything back when you're eventually done with'm.
-- Alan Cole, McLean (Fairfax County), Virginia, USA.​
 

T_R_Oglodyte

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Since depreciation is a non-cash charge that doesn't affect taxes, I don't think it's relevant to personal finance.

I think it's simpler and easier to simply construct a cash flow model. For example, if you expect that you will own the timeshare for 10 years

Year 0:
(negative) all purchase costs, including purchase price, closing costs, annual fees included with closing price, resort transfer fees, etc.​
Year 1:
(negative) - all fees paid, including any applicable exchange fees
(positive) - avoided cost of other comparable accomodations​
Year 2:
(negative) - all fees paid, including any applicable exchange fees
(positive) - avoided cost of other comparable accomodations​

.....

Year 10:
(negative) - all fees paid, including any applicable exchange fees
(positive) - avoided cost of other comparable accomodations + estimated net proceeds from sale of timeshare​

Look at the cash flows and decide if owning the TS is worthwhile. If you want to get a bit more sophisticated, use Excel formulas to calculate a Net Present Value using whatever interest rate you think appropriate (or to calculate a rate of return, if you prefer). Or to get even more sophisticated you can start adding in estimated rates of inflation, etc. You can make it as sophisticated as you like.

****

And I agree with Alan that this isn't strictly a financial decision. I think it's worthwhile to go through the exercise so you have an idea of what you are paying for vacations. But we're talking vacations and family time. Even if it doesn't pencil out as a financial investment, it's still an investment in family and mental health.
 
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trice01

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Misc

Steve- I use the term depreciation because others here have used it as the justification for held resale weeks going down in value. It's also somewhat relevant because even though we hold individual deeds, they are all part of a collective commercial enterprise and we sink or swim with the whole resort, not just our own unit.

I'm thinking on the assumption that a well-maintained property, including the capital improvements and repair/replacement that we pay for with our maint fees, should give a quality resort a very long useful life with minimal deterioration in its value as a property. I am picturing Breezy Point Resort here in MN, which incorporates portions built in the early part of the 1900's, but has kept current with remodels and refurbishment and is worth many times its original construction price.

Dave- I'm no economist, but the developer/resale model you describe makes no common sense to me. If the price of a new Lincoln Continental goes up, does that drive the price of the used ones down? I would argue the opposite- every price increase in the expensive model discourages more new model purchasers and pushes them into the used market, thus driving the price of used models up because of increased demand. It would be logical that the same applied to timeshare, assuming the sales prospects are aware that cheaper alternatives exist.

Alan- that's a very comforting, very general statement that is nice if true. The issue we are discussing here is whether that's true or not. If the loss of my deeded real estate value is 70% of my annual maint fee costs over 10 years, then a lot of my savings are going down the drain. I wouldn't mind tossing away a $1 timeshare. Losing $3500 on one pisses me off.
 

AwayWeGo

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Motel 6 & Super 8.

I wouldn't mind tossing away a $1 timeshare. Losing $3500 on one pisses me off.
If I tossed away my 4 (resale) timeshares, I'd be out the roughly $5,000 I spent buying'm. If we keep on using'm for vacations 10 more years ourselves (if my health & wealth, & The Chief Of Staff's, hold up that long -- knock wood), & then our son & daughter-in-law (who are also on all the deeds) keep on using'm years more after that, any residual value the deeds may or may not have by then will truly be trivial & incidental compared to the bucks paid over all that time for maintenance fees & exchange company membership fees & exchange fees. Even if those fees go up, so will the rates charged by places like Motel 6 & Super 8. Meanwhile, I expect the timeshare resorts will still be lots nicer vacation accommodations than the motels.

That's what I base mox nix on, anyhow. I'm not trying to convince anybody but myself -- & maybe The Chief Of Staff (good luck with that). And, shucks, I'm already convinced. So it goes.

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​
 

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Dave- I'm no economist, but the developer/resale model you describe makes no common sense to me. If the price of a new Lincoln Continental goes up, does that drive the price of the used ones down? I would argue the opposite- every price increase in the expensive model discourages more new model purchasers and pushes them into the used market, thus driving the price of used models up because of increased demand. It would be logical that the same applied to timeshare, assuming the sales prospects are aware that cheaper alternatives exist.
You can freely argue the opposite but that opposite argument isn't currently valid in the timeshare world. Take a look at the resale market. There are many more sellers than there are buyers. Perfectly good timeshares sell for a song or can't be sold at all. The resale market is heavy with inventory.

Developer prices go up because their costs go up and they successfully market to people who, for the most part, have no idea what the value is of what they are buying and aren't aware that there is a resale market. That differs from the auto and home markets where virtually every buyer is well aware of the resale market and has some idea of what the relative values are. With high-pressure sales tactics, the uninformed timeshare buyer never has a chance to make that type of comparison.

Your analysis makes sense in an ordinary free market. Timeshares just don't fit there.
 

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Hi Trice,

I agree with my fellow posters, especially Dave. The current resale market is still in it's infancy. Most folks don't even know it exists.

In Lincoln terms it's as if new Lincoln's were sold everywhere, but only people in Rhode Island would buy a "used" one at any price. Used Lincolns would then sell for $1.

Value is what something is worth to you. Market value is what something will garner in a free market that may or may not be in "equilibrium". Lack of knowledge that the resale market even exists, plus the predatory developer practices that yield negative emotional responses to timeshares in general are the cause.

What is the value of a week in the Caribbean with your family and not seeing the boss for a week - like the commercial says - "priceless".

More importantly, what is the value of doing that twice on the budget that used to only let you go once when you paid for a regular hotel? Never forget, you'll be dead a long time and you can't take it with you anyway...

Back to topic, markets do seek and will eventually find equilibrium is the accepted theory since Adam Smith wrote "The Wealth of Nations" over 200 years ago while this country was being born. We may be 10 or 15 years from that, hopefully less...

John
 

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but I have always expected well maintained real estate to appreciate over time.


Most appreciation is on the land. The building usually loss its value no matter how well you maintain it (unless you tore it down and rebuild it). Check any home real estate tax, espcially those with over 30 years old house.

On the other hand, most of the TS should be refurbished around 10 to 15 years, so their value should reset from that moment. But on a resell market, it may take a few effort to get these information (reserved funding, how well is the building get maintained, how well the HOA operates, the last time the building was remodelled, and what actually get rebuilded) and estimate the potential value of building. It is doubtful anyone will care to do that when buy TS resell.

If TS resell is one side buyer's market, it will be much easier to just assume you will loss all the value if you try to resell, that should make you much happier when you actually sell it. If you own it for use, during the time you own it, the resell value means nothing at all (may mean some if you care your paper assets value, or if you really treat it as investment).

Jya-Ning
 

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Timeshare a differnet animal

In a home or property purchase you as a buyer hold the marketable rights to a building or at least the land. They aren't making anymore land as they say so most likely, held long enough and assuming no government interference like declaring it a wetland area, you will eventually get more than you paid. Not so with timeshares. They are more like a land lease even with a deed - of course with RTU you have no rights after the magic date arrives. But you always have the annual fees - most likely rising all the time no matter what type of timeshare you purchase. The real cost is in those fees - not in the upfront price. If as Alan says you utilize that cost to obtain high quality vacations for minimal dollars you "win" the game. But if your resort is allowed to deteriorate, fees skyrocket or any number of cost inflating things occur the balance of cost to benefit may disappear. Far too many timeshares seem to go that way mostly because they never had a solid owner base but rather a group that felt trapped after a few years or only purchased to go elsewhere and then want to bail out.

Add to that the fact that unlike a condo or a home operation of a timeshare is far more expensive as there are front desk costs, maintenance / cleaning and simply supplying everything in the units from furnishings, entertainment equipment, appliances, cable service to soap and towels that a condo or a homeowner does for themselves. It is more service based than real estate based when you look at all that goes into it. Service costs tend to rise faster than any underlying land value so again the resale price suffers.

Finally there are those pesky Association rules based on the original sales documents. Those most likely say that the purchase ends on XX/XX/XXXX (RTU) or that the Association continues until a super majority vote of the owners (almost impossible to obtain) disbands it or sells the property as a whole. Even if the ground underneath the property was worth millions it would be tough to get thousands or often tens of thousands of individual owners to vote to sell it and divide the profits. The very thing that makes the timeshare affordable to the masses (little tiny slices of a often high end property none of the buyers could afford to own 100% of) makes it unlikely any profit could be realized to the owners. It also becomes unattractive to potential buyers as they don't want to deal with trying to buy out thousands and thousands of owners. They will buy something whole owned nearby first.

Timeshare really is a right to some degree of prepaid vacation not any type of investment in real property. The sales methods blur those lines and people want to believe they are paying to own property but that really isn't the case. You are buying the right to pay future fees for future vacations and little else.
 

AwayWeGo

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Hear! Hear!

In a home or property purchase you as a buyer hold the marketable rights to a building or at least the land. They aren't making anymore land as they say so most likely, held long enough and assuming no government interference like declaring it a wetland area, you will eventually get more than you paid. Not so with timeshares. They are more like a land lease even with a deed - of course with RTU you have no rights after the magic date arrives. But you always have the annual fees - most likely rising all the time no matter what type of timeshare you purchase. The real cost is in those fees - not in the upfront price. If as Alan says you utilize that cost to obtain high quality vacations for minimal dollars you "win" the game. But if your resort is allowed to deteriorate, fees skyrocket or any number of cost inflating things occur the balance of cost to benefit may disappear. Far too many timeshares seem to go that way mostly because they never had a solid owner base but rather a group that felt trapped after a few years or only purchased to go elsewhere and then want to bail out.

Add to that the fact that unlike a condo or a home operation of a timeshare is far more expensive as there are front desk costs, maintenance / cleaning and simply supplying everything in the units from furnishings, entertainment equipment, appliances, cable service to soap and towels that a condo or a homeowner does for themselves. It is more service based than real estate based when you look at all that goes into it. Service costs tend to rise faster than any underlying land value so again the resale price suffers.

Finally there are those pesky Association rules based on the original sales documents. Those most likely say that the purchase ends on XX/XX/XXXX (RTU) or that the Association continues until a super majority vote of the owners (almost impossible to obtain) disbands it or sells the property as a whole. Even if the ground underneath the property was worth millions it would be tough to get thousands or often tens of thousands of individual owners to vote to sell it and divide the profits. The very thing that makes the timeshare affordable to the masses (little tiny slices of a often high end property none of the buyers could afford to own 100% of) makes it unlikely any profit could be realized to the owners. It also becomes unattractive to potential buyers as they don't want to deal with trying to buy out thousands and thousands of owners. They will buy something whole owned nearby first.

Timeshare really is a right to some degree of prepaid vacation not any type of investment in real property. The sales methods blur those lines and people want to believe they are paying to own property but that really isn't the case. You are buying the right to pay future fees for future vacations and little else.
That's it in a nutshell -- really should be memorialized in a TUG sticky someplace.

As Alexander Pope (1688-1744) put it...


What oft was Thought, but ne'er so well Exprest

-- Alan Cole, McLean (Fairfax County), Virginia, USA.
 

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Wow

Plenty to respond to here, most from minds greater than my own.

One interesting note, re:buyouts-
Maybe that is what is in the cards for some resorts in the future.

I know of one in FL that is sitting on a couple prime acres in a white-hot upper crust enclave. Only about 25 units, so only 1300 owners maximum. I could easily see the property go for $10 million, bulldozed. Which means you could offer to buy out every single owner for roughly $7700 per week. I think that very few would turn down that offer, and even fewer if you prorated it by unit size and season. The only people who would get beaten in that scenario is the management company, who would probably fight it tooth and nail.
 

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Trice01 said:
One interesting note, re:buyouts-
Maybe that is what is in the cards for some resorts in the future.

I know of one in FL that is sitting on a couple prime acres in a white-hot upper crust enclave. Only about 25 units, so only 1300 owners maximum. I could easily see the property go for $10 million, bulldozed. Which means you could offer to buy out every single owner for roughly $7700 per week. I think that very few would turn down that offer, and even fewer if you prorated it by unit size and season.

This is true that the TS are selling for much, much less than the value of the buildings if it wasn't a TS. I just bought a week at a ocean front TS in SoCal for $1,500, if a full time condo might be worth well over a million (maybe $2 million). Thats ~ $20,000 per week or 13 times what I just paid.
 

trice01

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Exactly

I think if a private buyer or developer attended a HOA meeting and proposed a cash offer to buy out every owner, the board would have no choice but to put it to a vote of the owners. Especially if the cash offer was far more than the owners could ever get by selling their individual units.
 

timeos2

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Not impossible but never easy

I think if a private buyer or developer attended a HOA meeting and proposed a cash offer to buy out every owner, the board would have no choice but to put it to a vote of the owners. Especially if the cash offer was far more than the owners could ever get by selling their individual units.

Absolutely true. And most likely the Board would support the offer. But that doesn't mean that at least 50% plus 1 of the minimum 66.6% of all owners at the resort (in Fl thats the rule) would vote to accept it or even vote at all in the 60 days they are allowed to respond (plus an additional 30 days they can be granted for a total of 90). If the minimum 66.6% don't return the ballot then even if it's 100% to disband it can't legally happen. It is virtually impossible to get 66.6% return from over 10,000 owners from around the world. And that isn't a big resort by Orlando standards. You can't say it couldn't happen but it sure wouldn't be easy. In the couple of cases it has occurred it's only been after the majority of weeks were in foreclosure and then someone was able to step in and buy out the few owners left and the practically abandoned hulk of a building. And that resort (in Del Ray Beach) only had a couple thousand owners. It just isn't easy and isn't at all attractive to a potential developer. Thats why RTU looks so good to Disney, Sunterra and others who know the day is likely to come when they can get a big return and not have to share with the old buyers.

For a non-Florida example look at Summer Bay in Las Vegas. That Board has negotiated a great deal for the owners to actually change and upgrade properties at no cost. Yet some are questioning the deal (haven't heard any recent updates so I'm speaking from what was known last summer). It's never easy to get a dozen people to agree. To get thousands to do so is very very difficult. It's not a workable plan for most resorts.
 

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I never looked at my timeshare purchase as a real estate venture or investment. I've always thought of it as a way to get great vacations for cheap. It has so far worked for me. I never would have ever considered paying developer prices. I could never see the value in that. However, as we all know there are plenty of seemingly intelligent people who continue to do so.

When I tell people that I know how inexpensively I purchased mine, they are shocked. Most people are not aware of resales yet. At this point there are way more resales than people to buy them. However, when this becomes common knowledge I think the gap will narrow between the developer prices and resale prices. The developers will have to start selling at lower prices. They might do more of what companies such as Hilton have done and prevent you from selling low enough to devalue their timeshares.

Call me stupid, but I really think at some point, those of us who got in early, may actually profit slightly from this. If people are willing to pay developer prices, why wouldn't they be willing to pay a couple of thousand for something you may have paid a couple of hundred for, providing that you have a good week at a good resort?
 
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AwayWeGo

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[triennial - points]
Any Timeshare Magnate Brave Enough To Shape A New Biz Model ?

Most people are not aware of resales yet. At this point there are way more resales than people to buy them. However, when this becomes common knowledge I think the gap will narrow between the developer prices and resale prices. The developers will have to start selling at lower prices. They might do more of what companies such as hilton have done and prevent you from selling low enough to devalue their timeshares.
Why wouldn't they be willing to pay a couple of thousand for something you may have paid a couple of hundred for, providing that you have a good week at a good resort?
The developers have locked themselves into 1 self-limiting biz model -- high-pressure, arm-twisting, 1-on-1 sales pitches, plus keeping as hush-hush as they can the knowledge that "new" & "used" are mox nix in the timeshare biz, plus hemming people in with various restrictions (e.g., 1-in-4 exchange limits, ROFR, can't get certain brands of points resale, etc.), all designed to herd people toward paying full freight for "new" timeshares.

Right now, the timeshare market is so small that & the timeshare biz so marginal that the developers see the tiny resale market as a threat & do what they can to thwart timeshare resales & shield potential customers from even knowing about them.

But suppose some savvy & daring developer goes against the current low-volume & high-pressure & high price biz model, & starts promoting timeshare resales -- not only as a way of popularizing timeshares beyond their current niche market status, but also as a way of drying up the pool of cheap resales by getting'm all sold, generating (incidentally) an upward resale price trend, plus (more important) increasing the demand for "new" timeshares, as the availability of "used" timeshares diminishes. Then, with resale availability down & "new" timeshare demand up, that shrewd developer could go discount -- maybe not Wal*Mart style (because timeshares may never become a mass market commodity), but possibly adapting some form of the CarMax no-haggle model that's attractive to discerning buyers. (We'll buy your timeshare even if you don't buy ours.)

As it is now, just about all the information most folks get about timeshares comes from the sales weasels at those little round sales room tables bathed in Muzak. Just 15,000 or so get their timeshare knowledge from TUG, & maybe comparable numbers from other Internet sources, I don't know.

Is the USA ready 24-7 for The Timeshare Channel ? Are the Amazon folks ready to roll out a new timeshare business model, a field they'd have all to themselves because the only other biz model out there right now is... (Well, you know what it is.) Is there an entrepreneur out there anywhere who'll dare to think (& act) outside the box?
-- Alan Cole, McLean (Fairfax County), Virginia, USA.​
 
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....But suppose some savvy & daring developer goes against the current low-volume & high-pressure & high price biz model, & starts promoting timeshare resales -- not only as a way of popularizing timeshares beyond their current niche market status, but also as a way of drying up the pool of cheap resales by getting'm all sold, generating (incidentally) an upward resale price trend, plus (more important) increasing the demand for "new" timeshares, as the availability of "used" timeshares diminishes. Then, with resale availability down & "new" timeshare demand up, that shrewd developer could go discount -- maybe not Wal*Mart style (because timeshares may never become a mass market commodity), but possibly adapting some form of the CarMax no-haggle model that's attractive to discerning buyers. (We'll buy your timeshare even if you don't buy ours.)

If your calling Marriott "some savvy & daring developer " then I think you're right. By using their ROFR, Marriott has generated an upward resale price trend with their TS. Marriott is one of the few TS where you can buy and 10 years later often sell for a profit.

I just can't understand why a TS developer, which is still selling their product, would not buy up all resale at $0.10 - $0.25 /dollar and keep resale availablity low and therefore make their product more attractive. Fairfield comes to mind. The resales sell for 10 cent/dollar and a smart buyer after finding the resale market would never consider buy directly from FF.
 

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Savvy, Shmavvy.

I just can't understand why a TS developer, which is still selling their product, would not buy up all resale at $0.10 - $0.25 /dollar and keep resale availablity low and therefore make their product more attractive.
Possibly the timeshare companies don't want to be stuck with paying maintenance fees on even more unsold units than they already have in inventory. In that case, buying'm up cheap but holding'm in a slow-moving inventory till they sell at full freight wouldn't be so advantageous. In the new biz model, an innovative company would buy'm up cheap, mark'm up a little, & resell'm relatively cheap, turning'm over quickly enough that they wouldn't have much maintenance-fee payment exposure.
The resales sell for 10 cent/dollar and a smart buyer after finding the resale market would never consider buy directly from FF.
Exactly -- likewise, not directly from SunTerra or WestGate or Orange Lake or Celebrity or Summer Bay or Daily Resorts or Club Navigo or Silverleaf or Surrey or Consolidated Resorts or any of the full-freight timeshare sellers.
-- Alan Cole, McLean (Fairfax County), Virginia, USA.​
 

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I'm not one to suggest that anyone buy at the developers prices. But I feel there is a big difference buying from a company which has resale available at > 50 % of the developer price and companies which resales are at 10% of the developers price. I just can't think of any reason to pay full price when you can save 90%.
 

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Not Holding My Breath Waiting For New Biz Model.

I just can't think of any reason to pay full price when you can save 90%.
Me neither -- & not only that, I don't expect those 50% resales to have much appeal till after somebody transcends the old biz model & installs a new 1 that promotes (rather than suppresses) timeshare resales while offering reasonably priced (& non-armtwisting) "new" timeshares. Only then will (a) resale prices start going up once all those 10-percenters are grabbed up & (b) reasonably priced "new" timeshares become more attractive. The new biz model will narrow the gap between "new" & "used" prices. I am not holding my breath.

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​
 
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