More On Options

I love Options. I definitely believe that more people involved in Real Estate should learn and use the power of Options. Unfortunately, not too many are bold enough to try anything beyond the old methods of putting Real Estate Deals together.

Well, one of my readers is venturing further into the creative world of Deal Structuring. I recently received the following message, which I am condensing somewhat: “Hello Jack, I need a little guidance. I have a question about using a Rolling Option. I am a realtor representing a seller who owns abut 30 acres in Florida. we have a buyer who wants to buy 4 acres now, but he also wants to buy the remainder of the land later, in portions. To exercise the Option, can the Option money be made in payments? Does it have to be paid in one lump sum? Also, the seller has a loan on the entire 30 acres and is reluctant to sell of a portion, which might trigger the bank to call the loan due. Because of this, the seller would like to have some kind of ‘Lease Agreement’ on the balance of the land.”

My response to his message was:
“Exercise of the Option can be as agreed by the parties – Examples:
a. Each time a parcel is bought, could be with cash – or
b. Could be by Note & Deed of Trust – Secured by the parcel being bought payable as agreed by the parties.

How is the buyer paying for the Option – Could be
a. Purchase of the portion taken down, keeps Option alive on the remainder of the land – or
b. A consideration could be paid up front for the entire 30 acres, or as agreed by the parties.

If the initial 4 acres are not being released from the bank, then you might want to use a Lease with Option. You could do a Lease with Option for the entire parcel.

If existing loan does not have release provisions, the Owner might want to negotiate with the Lender to create release provisions. For example: Let’s say the loan is $120,000 or $4,000 per acre. The Owner might offer the Lender 125% of the loan amount per acre to obtain release.
Owed portion of loan on 4 acres = $12,000
Offer to pay $15,000 (125%) to release the 4 acres

The release price might also be affected by the lay of the land. If some portions of the land are more valuable than other portions, it would probably affect the release price of the portion being released. For example: Let’s say that part of the 30 acres fronts on a highway or street. The frontage land will be more valuable than the back portions of the land.

Is the buyer going to borrow money to do his Development/Building?

I would like to help you on this; however, not knowing all the variables, it is difficult to make specific recommendations. If you would like to call me to get more specific, please do.

Whatever you do, Good Luck and keep learning creative ways to put Real Estate deals together. It will set you apart from the crowd and will prove to be very lucrative for you.
Jack”

These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.