brian-gibbons
01-04-2005, 10:51 AM
If this is too basic, please forgive.....
==================================================
Options: The Ultimate Investment Tool
A wise man once said, "Property has its duties as well as its rights."
All of you who now own property know exactly what I mean.
Monthly payments, negative cash flow, sewer plug-ups, rent collection, tax and insurance bills, tenant "squabbles". These are some of the prices we pay for property ownership.
Why do property owners put up with these aggravations?
Very simply, because it is worth the price.
Any investment that can consistently bring us 25%, 50%, 100%, 200% returns on our money must always have a little bit of anguish associated with it.
Not so fast! What if I could show you a real estate investment tool that harnessed the exceptional real estate benefits of appreciation without the associated costs? The well designed option is such a tool.
The Ultimate Investment Tool
The legal definition of an option is a contract to keep an offer open. Basically, in real estate it is applied in this manner:
It gives one person (Optionee) the right to buy, sell, lease, exchange or mortgage a piece of property from another person (Optionor).
The parties included must conform to specific terms and conditions within a set time period.
The Pure Option
Let's say that you meet Mr. Farmer who lives on the edge of town. Through discussion, you find that Mr. Farmer is concerned that his land value might be falling because of poor yielding soil. You think that Mr. Farmer's land is in the path of urban growth. . . but you will have to wait at least three years. Mr. Farmer feels that his land is worth $1,000,000. You offer Mr. Farmer $5,000 for an option to buy his land at any time within the next three years for $1,000,000 on mutually acceptable terms. Mr. Farmer accepts; Mr. Farmer gets money now to do with as he wants. He gets some minor protection from a decline in market values. The money he receives as option consideration is tax free until the option is exercised.
What do you get?
With a relatively small "chunk" of cash (borrowed), you control the phenomenal appreciation potential of this $1,000,000 piece of ground. If you guessed correctly, this ground could be worth $2,000,000 in three years. This is an example of how with one small idea you could catapult yourself to a real estate empire.
The great news is that you have no tenants, you pay no taxes, insurance, no monthly "alligators" nipping at your financial heels. With the option, you have locked in the potential appreciation with none of the detrimental costs of owner ship.
Of course, if values do go down and you don't exercise your option, you would lose the option money. However, if you have adequately done your homework you can minimize the chances of total loss.
The option is a vital tool for the empire builder.
Let us examine some more options and formulas that can leverage you to riches.
Debt Relief Option
Mr. and Mrs. Motivation have debt problems. They are getting the squeeze from their friendly collection agency. Their debts only total $1,000, but for these people under pressure, with no means of getting it paid, it might as well be a million.
Mr. and Mrs. Motivation have determined that the only way to solve their problem and take care of their debt is to sell the house. They are asking $60,000. You sit down with them and ask,
"Where will you go if the house sells?" They say that they are not sure, "Rent or something else, I guess," they answer. "Y ou still owe $50,000 on the house, right?" You asked; they nod, yes.
"Instead of selling your house, why don't you give me an option to buy it at its current price in three years. I will even pay you all cash for your equity. In exchange for the option Mr. and Mrs. Motivation, I will assume your $1,000 debt today. You won't have to move from your house, you will get all cash for your equity when I exercise the option, and you get out from under those pressing debts.
If Mr. and Mrs. Motivation accept, contact the collection agency and try to work out an easy repayment schedule of the debts on behalf of Mr. and Mrs. Motivation. Borrow the money short term and buyout the debts at a discount.
Creatively work to lower your effective option consideration.
If Mr. and Mrs. Motivation balk at your offer, attempt to option 50% of the house. What you are doing is locking in the appreciation potential of the single family house for little or no cash.
I recently solved a debt problem of this sort and received an option on one,third of a house. If you are betting as I do that well selected houses are going to appreciate over the next few years, find a Mr. and Mrs. Motivation and option all or even a part of their house.
Let's look at your potential profit in the last example.
In three years, given a 10% appreciation rate, that house would be worth $81,000. $81,000,$60,000 = $21,000 gross profit.
If you subtract your maximum investment of $1,000 cash, your net gain before taxes would be approximately $20,000. . . and you did not have the problem of property ownership. It will not take too many of these to put your empire in the "millions" quickly. Start now!
Note As Option
Use a Promissory Note instead of cash for option consideration.
You might also use post dated checks, bank drafts, money market fund checks, or any legitimate means by which you can harness the appreciation benefits of real estate today and pay tomorrow with dollars "cheapened" by inflation.
This note could be secured or unsecured.
If it needs to be secured, try a piece of real estate you own or a piece you can borrow. Attempt to make any cash payment due at the time you exercise the option. . . as far into the future as possible.
You might also attempt to secure a note with a friend's co-signature, Trust Deed, T,bills, government bonds, stocks, etc.
Dream As Option
"Dreams" make good vehicles for options. Mr. and Mrs. "Consumer" would love to go to Hawaii. They just never had the spare cash to get there. Give Mr. and Mrs. Consumer the trip to Hawaii in exchange for an option to purchase all or part of their home.
You might be able to arrange a trade for a week in a condominium in Hawaii. Contact media brokers who sometimes have airline tickets for trade. Substitute talent and ideas for cash whenever possible, i.e., use credit cards, installment loans, trades, etc.
Mr. and Mrs. Consumer run on emotional non-profit oriented modes. You as a Real Estate Empire Builder, must recognize this fact and fill their need accordingly. Give Mr. and Mrs. Consumer their "toys" and "dreams" today.
You will be rich tomorrow by effectively using these as an option device.
Equity As Option
Use existing property as option consideration. It's best to use "currency items" for this, unless you are absolutely secure about the future price movements of a property, i.e., you've gotten some inside information of a zoning change.
As mentioned before, currency property might include "Recreational lots," gemstones, script for services, etc.
By harnessing the appreciation benefits of a nice piece of property. by using unsaleable property as option consideration, we begin to unlock hidden assets in our real estate portfolio.
All property has value.
It is the ideas applied to that property that ultimately determine its real value. By placing a piece of "currency ground" into a transaction, you have just taken a step toward increasing your "real" net worth.
"Sweat" As Option
Offer the use of your abilities, securities, or just labor as consideration for an option. I have a budding real estate empire builder friend who has acquired an option to buy 50% interest in several houses. He finds "run down" properties badly in need of repairs. He contacts the owner and offers his labor and carpentry skills as consideration for an option. His proposition goes something like this:
"You buy the materials and I'll fix up the house and manage it. In exchange, I want an option to buy 50% of your house for $1 dollar at anytime during the next five years."
A good deal for both parties. An out of town owner with a vacant house needs an empire builder to restore and save his real estate investment.
Drive around various neighborhoods. When you spot a "run,down" house, take note of the address. Ask neighbors who owns the house. They will generally know. If they don't know, you can find out from the county tax records.The owners need help! You can help them and yourself with a "sweat option."
The Rolling OptionThe Rolling Option basically allows you to control a small portion or tract of a larger piece of property. (This is a tool usually used in land developments, but it also may be used with housing tracts or condominium developments). If you meet with success with the small portion through rezoning, a favorable resale, etc., your original option would then "rollover" to another portion or all of the remaining land.
For example, you have just found a promising thirty acre parcel in the path of growth outside your town. The owner wants $15,000 per acre for it. Because of uncertain economic conditions, you are not sure that you want to risk buying the entire property.
You decide to option five acres of the entire parcel which is thirty acres. The option consideration is $1,000. That is the kind of super leverage that yields big potential profits. The land is already split into five acre parcels. If you meet with success in marketing the first five acre parcel, you can then exercise the option and buy the land or just transfer the options to a new optionee. Built into the Rollover Option is a statement that simply says, "if optionee exercises option on Parcel #1, he then has an option to buy Parcel #2, and so on. Be sure to consult a competent real estate attorney before you draft this type of option.
The Rolling Option Variation
A variation on the Rolling Option idea might work like this: Go to the courthouse and with some research find an "old" subdivision. Everything has been plotted and divided, but for some reason the lots have never been sold. The original owner still owns the lots. My friend Rick ran into such a deal. He called the owner and asked, "How would you like to convert the "dead equity" in that old subdivision into a secure income?" The owner liked the idea.
With some research, Rick found that the land in this area was selling for about $700 per acre. However, he also discovered that lots near this area were selling for about $3,000 apiece. Rick "smelled" a profit.
He made the following offer to Mr. "Dead Equity":
1. For one dollar and other valuable consideration, I option lots 1-1O for ninety days. The exercise price will be $700 per lot.
2. If I exercise my option, the terms of the sale will be as follows:
Payments to be made in sixty equal monthly installments including 10% interest.
3. Also, I have the right to substitute collateral to property of equal or greater value. (This means that the Buyer can take the loan off this property, making it free and clear); this is called definancing a property.
4. If I exercise this option, I have the right to option lots 1O-20, and so on. . .
The offer was accepted by Mr. "Dead Equity."
Rick then went out and found a Mr. "Motivation." Mr. Motivation owned an apartment building that had some management problems. He wanted out!
Rick, being a creative empire builder, surveyed the situation and decided that he could solve the building's management problem.Rick offered Mr. "Motivation" the first ten lots of the optioned subdivision.
The exchange value would be $3,000 per lot, or $30,000 as a downpayment on the apartment building.
How was Rick able to deliver the lots free and clear to Mr. "Motivation?"
There was sufficient equity in the apartment building for Rick to "move" the loans from the lots to the newly acquired apartment building. He substituted the apartment building as collateral instead of the lots.
The owner of the lots was happy. He converted a "dead equity" into an in come stream secured by improved property. Mr. "Motivation" was happy as he exchanged a management problem piece of real estate to a management free property.
Rick optioned the remainder of the lots in the subdivision and proceeded to trade them into other improved properties.
Starting with this simple option idea, Rick was able to pyramid himself to $75,000 in solid equities within six months starting with only one dollar! Rick truly deserves the empire builder's "Creating Something From Nothing" award.
Option For An OptionTry an option for an option as consideration. As you become more experienced in the option game you can further leverage the options that you own.
Give Mr. "Motivation" an option to buy a nice apartment building; in exchange, you might get an option to buy his house.Why would Mr."Motivation" do this?
He might think that your well located apartment building will rise in value faster than his house. He is accepting your option as a hedge against a possible decline in the value of his home.
Exchangeable Equity Option
If you have "locked" in a low enough price for a long enough time period and with favorable terms, the chances are pretty good that your option has value in excess of the consideration paid. You can use that value or equity in an option in place of a cash downpayment on a house.
For example, let's say that I option an apartment building for $1,000 for one year. The building has a 15% vacancy factor and 1 am willing to pay the current market value of $300,000 for this building.
1 am interested in this project because I have discovered that a large manufacturing company is moving into the area soon.
The company plans to bring more employees which should eliminate my vacancy problem. This reduction of vacancies should increase the value of the building, to let's say $350,000. 1 now have a $50,000 exchangeable equity in my option.
I find Mr. "Up and Coming" Seller. He sees an opportunity to trade his house for an option on a nice apartment building in a growing area. Mr. "Up and Coming" Seller might see it as a way to get out of a troublesome rental house into "hassle-free" appreciation.
Options don't just apply to real estate. They have been used in the stock market for many years.
What are some of the other items in which you could create an exchangeable equity using options?
* Leases
* Cars, boats to buy
* Notes, mortgages, trust deeds
* Vacation time
* Income flows through trusts
* Air rights
You can option almost anything on which there is a delayed acceptance situation possible.
Use your imagination.
What do you have of value?
What will you have of value?
Use these "hidden assets" as options to control well*selected real estate.
The ideal exchange of options for real estate occurs when you trade your depreciating assets for appreciating real property, i.e., personal property, boats, cars, ete. for real properties, houses, condo's.
The Keys For Making The Option Work
1. Lock in the exercise price on the option in terms of today's value so thatyou can control the benefits of future appreciation.
2. Always have your options notarized and recorded in the county courthouse.
3. Before recording an option) always get a preliminary title report so that you can verify information given to you by the optionor.
4. An option that you own is saleable or exchangeable. . . if you have structured it properly there should be a real exchangeable value to that option.
5. The key to success in making money with an option is leverage. Put the smallest amount of consideration down to control the largest amount of property.
6. Get the longest time period possible.
7. Adequately address possible future problems in your option agreement.
* Optionor takes out another loan
* Bankruptcy
* Insurance coverage
* Eminent Domain
* What happens in case of death of owner?
* Default on loans
* Care of property
Have your attorney examine ant option agreement to determine if it conforms with your local and state laws.
Use the options to control a "hassle free" real estate empire.
Brought to you by Brian Gibbons, www.creiu2.com
==================================================
Options: The Ultimate Investment Tool
A wise man once said, "Property has its duties as well as its rights."
All of you who now own property know exactly what I mean.
Monthly payments, negative cash flow, sewer plug-ups, rent collection, tax and insurance bills, tenant "squabbles". These are some of the prices we pay for property ownership.
Why do property owners put up with these aggravations?
Very simply, because it is worth the price.
Any investment that can consistently bring us 25%, 50%, 100%, 200% returns on our money must always have a little bit of anguish associated with it.
Not so fast! What if I could show you a real estate investment tool that harnessed the exceptional real estate benefits of appreciation without the associated costs? The well designed option is such a tool.
The Ultimate Investment Tool
The legal definition of an option is a contract to keep an offer open. Basically, in real estate it is applied in this manner:
It gives one person (Optionee) the right to buy, sell, lease, exchange or mortgage a piece of property from another person (Optionor).
The parties included must conform to specific terms and conditions within a set time period.
The Pure Option
Let's say that you meet Mr. Farmer who lives on the edge of town. Through discussion, you find that Mr. Farmer is concerned that his land value might be falling because of poor yielding soil. You think that Mr. Farmer's land is in the path of urban growth. . . but you will have to wait at least three years. Mr. Farmer feels that his land is worth $1,000,000. You offer Mr. Farmer $5,000 for an option to buy his land at any time within the next three years for $1,000,000 on mutually acceptable terms. Mr. Farmer accepts; Mr. Farmer gets money now to do with as he wants. He gets some minor protection from a decline in market values. The money he receives as option consideration is tax free until the option is exercised.
What do you get?
With a relatively small "chunk" of cash (borrowed), you control the phenomenal appreciation potential of this $1,000,000 piece of ground. If you guessed correctly, this ground could be worth $2,000,000 in three years. This is an example of how with one small idea you could catapult yourself to a real estate empire.
The great news is that you have no tenants, you pay no taxes, insurance, no monthly "alligators" nipping at your financial heels. With the option, you have locked in the potential appreciation with none of the detrimental costs of owner ship.
Of course, if values do go down and you don't exercise your option, you would lose the option money. However, if you have adequately done your homework you can minimize the chances of total loss.
The option is a vital tool for the empire builder.
Let us examine some more options and formulas that can leverage you to riches.
Debt Relief Option
Mr. and Mrs. Motivation have debt problems. They are getting the squeeze from their friendly collection agency. Their debts only total $1,000, but for these people under pressure, with no means of getting it paid, it might as well be a million.
Mr. and Mrs. Motivation have determined that the only way to solve their problem and take care of their debt is to sell the house. They are asking $60,000. You sit down with them and ask,
"Where will you go if the house sells?" They say that they are not sure, "Rent or something else, I guess," they answer. "Y ou still owe $50,000 on the house, right?" You asked; they nod, yes.
"Instead of selling your house, why don't you give me an option to buy it at its current price in three years. I will even pay you all cash for your equity. In exchange for the option Mr. and Mrs. Motivation, I will assume your $1,000 debt today. You won't have to move from your house, you will get all cash for your equity when I exercise the option, and you get out from under those pressing debts.
If Mr. and Mrs. Motivation accept, contact the collection agency and try to work out an easy repayment schedule of the debts on behalf of Mr. and Mrs. Motivation. Borrow the money short term and buyout the debts at a discount.
Creatively work to lower your effective option consideration.
If Mr. and Mrs. Motivation balk at your offer, attempt to option 50% of the house. What you are doing is locking in the appreciation potential of the single family house for little or no cash.
I recently solved a debt problem of this sort and received an option on one,third of a house. If you are betting as I do that well selected houses are going to appreciate over the next few years, find a Mr. and Mrs. Motivation and option all or even a part of their house.
Let's look at your potential profit in the last example.
In three years, given a 10% appreciation rate, that house would be worth $81,000. $81,000,$60,000 = $21,000 gross profit.
If you subtract your maximum investment of $1,000 cash, your net gain before taxes would be approximately $20,000. . . and you did not have the problem of property ownership. It will not take too many of these to put your empire in the "millions" quickly. Start now!
Note As Option
Use a Promissory Note instead of cash for option consideration.
You might also use post dated checks, bank drafts, money market fund checks, or any legitimate means by which you can harness the appreciation benefits of real estate today and pay tomorrow with dollars "cheapened" by inflation.
This note could be secured or unsecured.
If it needs to be secured, try a piece of real estate you own or a piece you can borrow. Attempt to make any cash payment due at the time you exercise the option. . . as far into the future as possible.
You might also attempt to secure a note with a friend's co-signature, Trust Deed, T,bills, government bonds, stocks, etc.
Dream As Option
"Dreams" make good vehicles for options. Mr. and Mrs. "Consumer" would love to go to Hawaii. They just never had the spare cash to get there. Give Mr. and Mrs. Consumer the trip to Hawaii in exchange for an option to purchase all or part of their home.
You might be able to arrange a trade for a week in a condominium in Hawaii. Contact media brokers who sometimes have airline tickets for trade. Substitute talent and ideas for cash whenever possible, i.e., use credit cards, installment loans, trades, etc.
Mr. and Mrs. Consumer run on emotional non-profit oriented modes. You as a Real Estate Empire Builder, must recognize this fact and fill their need accordingly. Give Mr. and Mrs. Consumer their "toys" and "dreams" today.
You will be rich tomorrow by effectively using these as an option device.
Equity As Option
Use existing property as option consideration. It's best to use "currency items" for this, unless you are absolutely secure about the future price movements of a property, i.e., you've gotten some inside information of a zoning change.
As mentioned before, currency property might include "Recreational lots," gemstones, script for services, etc.
By harnessing the appreciation benefits of a nice piece of property. by using unsaleable property as option consideration, we begin to unlock hidden assets in our real estate portfolio.
All property has value.
It is the ideas applied to that property that ultimately determine its real value. By placing a piece of "currency ground" into a transaction, you have just taken a step toward increasing your "real" net worth.
"Sweat" As Option
Offer the use of your abilities, securities, or just labor as consideration for an option. I have a budding real estate empire builder friend who has acquired an option to buy 50% interest in several houses. He finds "run down" properties badly in need of repairs. He contacts the owner and offers his labor and carpentry skills as consideration for an option. His proposition goes something like this:
"You buy the materials and I'll fix up the house and manage it. In exchange, I want an option to buy 50% of your house for $1 dollar at anytime during the next five years."
A good deal for both parties. An out of town owner with a vacant house needs an empire builder to restore and save his real estate investment.
Drive around various neighborhoods. When you spot a "run,down" house, take note of the address. Ask neighbors who owns the house. They will generally know. If they don't know, you can find out from the county tax records.The owners need help! You can help them and yourself with a "sweat option."
The Rolling OptionThe Rolling Option basically allows you to control a small portion or tract of a larger piece of property. (This is a tool usually used in land developments, but it also may be used with housing tracts or condominium developments). If you meet with success with the small portion through rezoning, a favorable resale, etc., your original option would then "rollover" to another portion or all of the remaining land.
For example, you have just found a promising thirty acre parcel in the path of growth outside your town. The owner wants $15,000 per acre for it. Because of uncertain economic conditions, you are not sure that you want to risk buying the entire property.
You decide to option five acres of the entire parcel which is thirty acres. The option consideration is $1,000. That is the kind of super leverage that yields big potential profits. The land is already split into five acre parcels. If you meet with success in marketing the first five acre parcel, you can then exercise the option and buy the land or just transfer the options to a new optionee. Built into the Rollover Option is a statement that simply says, "if optionee exercises option on Parcel #1, he then has an option to buy Parcel #2, and so on. Be sure to consult a competent real estate attorney before you draft this type of option.
The Rolling Option Variation
A variation on the Rolling Option idea might work like this: Go to the courthouse and with some research find an "old" subdivision. Everything has been plotted and divided, but for some reason the lots have never been sold. The original owner still owns the lots. My friend Rick ran into such a deal. He called the owner and asked, "How would you like to convert the "dead equity" in that old subdivision into a secure income?" The owner liked the idea.
With some research, Rick found that the land in this area was selling for about $700 per acre. However, he also discovered that lots near this area were selling for about $3,000 apiece. Rick "smelled" a profit.
He made the following offer to Mr. "Dead Equity":
1. For one dollar and other valuable consideration, I option lots 1-1O for ninety days. The exercise price will be $700 per lot.
2. If I exercise my option, the terms of the sale will be as follows:
Payments to be made in sixty equal monthly installments including 10% interest.
3. Also, I have the right to substitute collateral to property of equal or greater value. (This means that the Buyer can take the loan off this property, making it free and clear); this is called definancing a property.
4. If I exercise this option, I have the right to option lots 1O-20, and so on. . .
The offer was accepted by Mr. "Dead Equity."
Rick then went out and found a Mr. "Motivation." Mr. Motivation owned an apartment building that had some management problems. He wanted out!
Rick, being a creative empire builder, surveyed the situation and decided that he could solve the building's management problem.Rick offered Mr. "Motivation" the first ten lots of the optioned subdivision.
The exchange value would be $3,000 per lot, or $30,000 as a downpayment on the apartment building.
How was Rick able to deliver the lots free and clear to Mr. "Motivation?"
There was sufficient equity in the apartment building for Rick to "move" the loans from the lots to the newly acquired apartment building. He substituted the apartment building as collateral instead of the lots.
The owner of the lots was happy. He converted a "dead equity" into an in come stream secured by improved property. Mr. "Motivation" was happy as he exchanged a management problem piece of real estate to a management free property.
Rick optioned the remainder of the lots in the subdivision and proceeded to trade them into other improved properties.
Starting with this simple option idea, Rick was able to pyramid himself to $75,000 in solid equities within six months starting with only one dollar! Rick truly deserves the empire builder's "Creating Something From Nothing" award.
Option For An OptionTry an option for an option as consideration. As you become more experienced in the option game you can further leverage the options that you own.
Give Mr. "Motivation" an option to buy a nice apartment building; in exchange, you might get an option to buy his house.Why would Mr."Motivation" do this?
He might think that your well located apartment building will rise in value faster than his house. He is accepting your option as a hedge against a possible decline in the value of his home.
Exchangeable Equity Option
If you have "locked" in a low enough price for a long enough time period and with favorable terms, the chances are pretty good that your option has value in excess of the consideration paid. You can use that value or equity in an option in place of a cash downpayment on a house.
For example, let's say that I option an apartment building for $1,000 for one year. The building has a 15% vacancy factor and 1 am willing to pay the current market value of $300,000 for this building.
1 am interested in this project because I have discovered that a large manufacturing company is moving into the area soon.
The company plans to bring more employees which should eliminate my vacancy problem. This reduction of vacancies should increase the value of the building, to let's say $350,000. 1 now have a $50,000 exchangeable equity in my option.
I find Mr. "Up and Coming" Seller. He sees an opportunity to trade his house for an option on a nice apartment building in a growing area. Mr. "Up and Coming" Seller might see it as a way to get out of a troublesome rental house into "hassle-free" appreciation.
Options don't just apply to real estate. They have been used in the stock market for many years.
What are some of the other items in which you could create an exchangeable equity using options?
* Leases
* Cars, boats to buy
* Notes, mortgages, trust deeds
* Vacation time
* Income flows through trusts
* Air rights
You can option almost anything on which there is a delayed acceptance situation possible.
Use your imagination.
What do you have of value?
What will you have of value?
Use these "hidden assets" as options to control well*selected real estate.
The ideal exchange of options for real estate occurs when you trade your depreciating assets for appreciating real property, i.e., personal property, boats, cars, ete. for real properties, houses, condo's.
The Keys For Making The Option Work
1. Lock in the exercise price on the option in terms of today's value so thatyou can control the benefits of future appreciation.
2. Always have your options notarized and recorded in the county courthouse.
3. Before recording an option) always get a preliminary title report so that you can verify information given to you by the optionor.
4. An option that you own is saleable or exchangeable. . . if you have structured it properly there should be a real exchangeable value to that option.
5. The key to success in making money with an option is leverage. Put the smallest amount of consideration down to control the largest amount of property.
6. Get the longest time period possible.
7. Adequately address possible future problems in your option agreement.
* Optionor takes out another loan
* Bankruptcy
* Insurance coverage
* Eminent Domain
* What happens in case of death of owner?
* Default on loans
* Care of property
Have your attorney examine ant option agreement to determine if it conforms with your local and state laws.
Use the options to control a "hassle free" real estate empire.
Brought to you by Brian Gibbons, www.creiu2.com