Purchasing Points For The First Time

Since starting our travel hacking adventures nearly 4 years ago, we never purchased points or miles to pad our balances.  Credit card signup bonuses and other promotions have been more than sufficient to cover the entirety of our flight and hotel needs, but our needs have changed ever since we quit our jobs to travel the world.

The conditions finally appear to have lined up to where it makes sense for us to exchange some cash for points.  I rarely like trading cash for future potential “value” via points because it’s mostly a marketing gimmick, so this wasn’t a decision we made lightly.

Despite what you might read on some of the bigger (affiliate based) miles and points blogs, buying points does not make sense for the vast majority of people!  However, our fairly unique situation of living on the road made it worthwhile to look into the recent IHG points sale.

Even with our plans to spend over 250 nights in hotels this year, it still wasn’t a cut and dry decision to load up on points!  I’ll break down some of the hotel stats from our gap year so far and the math behind why we think this point purchase will end up saving us some money over the next few months.

The Gap Year IHG Stats (so far)

As of writing this post, we have lived on the road for nearly 5 months and have spent 106 nights in hotels, 41 of those being in IHG properties.  If you’re not familiar, IHG is the “Intercontinental Hotel Group” that includes Holiday Inn, Candlewood Suites, and several other hotel brands that all share a loyalty program.

Of the 41 nights spent in various IHG properties, we’ve had both a mix of cash and points stays:

Cash Stays – 16

• Total Cost – $1,614.30
• Average Cost per Night – $100.89
• Points Earned – 104,347 (mostly promotions, doesn’t include credit card rewards)
• Average Points Earned per Night – 6,522
• Average Points Return per $1 spent – 65

Points Stays – 22

• Total Points Cost – 195,000
• Average Points Cost Per Night – 8,864
• 10% Points Rebate (via the older IHG credit card)- 19,500
• Net Points Cost Per Night – 7,977
• Average Cash Value Per Night – $116
• Average Net Redemption Value Per Point – 1.45 cents

Points + Cash Stay – 1

• Cash Cost – $45
• Points Cost – 5,000 (4,500 after 10% rebate)

Free* Nights – 2

• Cost – FREE or $49 per night depending on how you do your accounting

The more relevant stats we’ll be paying attention to when evaluating whether or not buying points make sense are that we’re earning 65 points per dollar spent and averaging 1.45 cents a piece when redeeming them.

In my opinion, both of these numbers are skewed, but in opposite directions such that they possibly balance out.  The 65 points per dollar spent (excluding credit card rewards) is probably a little high because we’ve almost exclusively paid cash for nights that applied towards generous promotions.  These promotions have limits and will not always be available which means increasing cash stays will lower the average points earned per dollar.

On the other hand, the 1.45 cents per point redemption value we’ve seen so far probably skews a bit high.  For starters, I’ve only recorded the cash price of the exact same nights at the exact same hotel.  While this works as a good ballpark figure, it’s very possible we could have found cheaper accommodations nearby at a non-IHG property if we didn’t have points to spend.  In addition, several point breaks properties lined up with our travels earlier in the year, allowing us to get amazing value via discounted points rates.  There is no guarantee we will be able to stretch our points that far in the future.

Evaluating the IHG Points Sale

When you directly buy IHG points in quantity, the normal retail price is 1 cent per point.  However, IHG frequently offers various discounts that lower the cost per point.

In addition, it is also possible to buy IHG points indirectly if you already have some in your account.  This is done by booking any “Points + Cash” room through the normal IHG website and then cancelling the booking soon after.  The cash portion of the booking will be refunded in points.  The cost per point varies depending on the property, tier, and promotions, but typically works out to 0.6-0.8 cents per point.

What I recently evaluated was a direct points sale that offered a 100% bonus on points purchases, lowering the cost per point to 0.5 cents each.

Using our average stats above, let’s see what kind of savings we could expect by spending $500 to purchase 100,000 points:

• Total Cost – $500
• Points Purchased – 100,000
• Cost per point – 0.5 cents
• Points Foregone on $500 of cash stays – 32,500 (using the 65 points/$1 average)
• Net Points – 67,500
• Expected Value of Net Points – $978.75 (using the 1.45 cents/point average)

Given our current burn rate on IHG points and existing balance, I would expect it to take us ~6 months to redeem a new set of 100,000 points.  If we are able to successfully get the $978 in value out of them during that time frame, it works out to a nearly 50% discount on our hotel stays!

The other component to consider is risk, the largest being an unexpected situation that would prevent us from redeeming the points at all for a long period of time.  Points balances don’t accrue interest and can even go down in value, so cash is a much better long term hold.

Changing the Variables

As I mentioned above, the important rates we’re using to evaluate this deal might not be accurate!  Using our actual earning and redemption rates from the first 5 months of this trip is a limited sample size, but I do think it’s more accurate than blindly following a “value” assigned to the points by someone else.

Everyone travels differently and needs can vary significantly.  Even we look at hotel points with an entirely different perspective now than we did prior to this year.  Our hotel needs changed from needing 3-7 nights at a time, in various locations around the globe, a few times per year to needing 20+ nights per month, in the US, where we always have a car with us.

One of our biggest advantages towards maximizing hotel point value is our flexibility on this trip.  As we travel across the country, there are many nights spent between larger destination cities that tend to have quality properties for low points cost.  We also have the flexibility of time that allows us to go a little out of our way if we can get an amazing deal with points, such as a point breaks property.  On top of that, we can choose exactly how long we want to spend in each location which makes optimizing the newer 4th night free benefit much easier.

If we strip away all of these benefits that have allowed us to maximize our IHG point value, our average redemption value would probably drop significantly!  The typical value I see thrown around in the points community for IHG points is ~0.7 cents/point.

Leaving the earning rate alone, that would make the $500 purchase worth a solid $473!  It’d be a terrible decision to convert your cash into points, reduce flexibility, add risk, and probably end up in the red by the time you spent them.

If we adjust the earning rate to a more reasonable 25 points/$1, then the equation balances back in the right direction to a value of $613 on a $500 purchase.  This is still a questionable deal given the extra risk and reduced flexibility that comes with the ~20% discount, but it could work out favorably in the long run.

Should You Buy Some Points?

My default answer for almost anyone that asks if they should buy points remains a No.  As long as credit card bonuses exist, the average person/couple/family will come out much further ahead utilizing those for their travel needs than buying points.  An 80-90% discount with minimal risk is far better than a potential 10-50% discount.

Even when the loyalty programs offer their best sales on points, it rarely makes sense to speculatively buy them in the hope of coming out ahead.  Keep in mind that the hotel brand is only selling points (sales included) because they know for a fact they will come out ahead in the aggregate.  Many purchased points go unused over long time periods, expire, or are used inefficiently such that just paying in cash would have been the better choice.  Don’t be that person.

However, if you have a specific redemption in mind or have a very good handle on how often you use points and what value you are receiving from them, it may make sense to purchase points.

We did end up buying 100,000 IHG points for $500 during this last promotion and hope to get a good return on that investment over the coming months.  Part of what motivated the purchase was my desire for some more IHG points during the last time we booked hotels for the coming weeks.  IHG has a very large footprint across the US and many of their Holiday Inn Express and Candlewood Suite properties have been great redemptions for us.

Looking at the math above, it may seem like a no-brainer for us to have bought the points, but I’m always hesitant to convert universally flexible cash into a specific rewards currency.  In fact we had the option to spend $1,000 for 200,000 points instead, but I decided to be a little conservative for our first ever points purchase.

Time will tell if we made the right choice, but I’m optimistic for now.