Options For Big $$ - Part II

In our last post we went through some definitions and other preliminaries about Options, who the players were, etc. To better understand the power of Options let’s discuss some case histories. Now in a previous series of posts (see the Eddie Nivens story) we talked about doing Lease Options with Shared Future Appreciation between the Optionee and the Optionor. This is one of my favorite programs because it is so easy to do. You are working with highly motivated sellers (Optionors) and you don’t need much money to make it work. If you missed this series I suggest you pull it up from our post archives in the “Investor Corner” section. Just look for the Eddie Nivens story.

Now, meanwhile back at the ranch, let’s get into some examples of using pure Options. You probably have heard about “Flipping” houses or other properties wherein a party (Buyer, Flipper) enters into a Sale & Purchase Agreement with a seller, puts up some earnest money, then goes out and finds another party that they can contract to “Sell” the property to before they have actually closed on buying the property. Then they either assign the Sale & Purchase Agreement to the third party or do a “Double” escrow wherein they close on the purchase with the first party, turn right around and close on the sale to the third party.

This is really nothing but a form of an Option. In my opinion it is much cleaner, better, less paperwork, etc., to just buy an Option on the property than it is to go out and find another party who would like to buy the property and sell the Option to them. By buying and selling the Option it also saves time and money for both the eventual Optionee (buyer) and the Optionor (seller). Less closing costs, etc.

I’ve been promising a case history, so let’s do one.
Mr. Adams is a Land Developer, Entrepreneur, Real Estate Investor, etc. Mrs. Walters is a widow who owns several Real Estate properties. Mr. Walters had been the one who handled and managed the Real Estate. His passing has left Mrs. Walters owning the Real Estate with little experience or interest in trying to continue to manage these properties. Therefore, she has most of these properties up for sale. Also, Mrs. Walters’ cash flow situation is not good. She really needs to sell off some of those properties.

One of the properties is a 40 acre piece of land located fairly close, but outside the city limits. Mrs. Walters has the land listed for sale at $1,000 per acre or $40,000. Mr. Adams knows that there is a shortage of lots with restrictions allowing Manufactured Homes (mobile homes, but God forbid, NOT trailers). After spotting the 40 acres for sale, Mr. Adams visits several Manufactured Home dealers located on the same side of town where the land is.

In checking with the County Tax Office Mr. Adams discovers that there is the previous year’s taxes owed on the property, in an amount of $450.00. Mr. Adams makes the following offer to Mrs. Walters.
1. Mr. Adams will pay the back taxes on the land as consideration for the Option to buy the land for a price of
$40,000. The Option is for a period of one year.
2. Mrs. Walters accepts the offer and they enter into an Option Agreement which Mr. Adams has recorded at the
County Courthouse.

BENEFITS TO THE PARTIES:
1. Mr. Adams has total control over the land for only $450.00 . If he does exercise the Option, he will get the $450.00
back as the taxes will be paid. He knows if the land were developed into Lots allowing mobile homes, it would
sell quickly.
2. Mrs. Walters is hard pressed for cash flow. The Option pays the taxes and stops the penalties. Even if Mr. Adams
does not exercise the Option, her taxes are paid.
We have seen the beginning of an interesting deal. – What comes next? As Paul Harvey would say, see the next post for the “Rest of the Story.”

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.

Rolling Option - Part II

In the last post we talked about a Land Developer tying up and controlling a 640 acre parcel of land that he wanted to develop over time. However, he could only afford to develop 40 acres initially and the seller would not finance the land. So, they worked a deal beneficial to both wherein the developer would take down the first 40 acres and have an Option to purchase the remaining land in 40 acre parcels or larger, over time.Let’s look at another example of how this concept could be used on a smaller scale.

Let’s say that Mr. Charles, an experienced Home Builder, wants to build some Spec houses and needs lots on which to build them. He has funds to build the first house, but can’t buy several lots at the same time. Mr. Charles, through a realtor, locates a Mr. Apple who owns 20 lots in a Residential Subdivision. As in our other example, Mr. Apple wants to cash out of the lots, but is in no great hurry to do so. He also doesn’t want to finance the lots to a builder who is building Spec houses. The builder could go broke and leave the lots tied up in legal actions.

The Realtor, who had been to an Option Seminar, proposed the following solution:
1. Mr. Charles will purchase an Option To Buy the 20 lots. The Option terms allows him to take down lots one or
more at a time by paying cash for the ones taken down.
2. Mr. Charles will pay cash for the first lot. This allows him to do all the things necessary (permits, site work, etc.)
and build his first house. With the return of his funds plus profits from the sale of the first house, he can buy
the next one or more lots.
3. This allows Mr. Charles to “Roll” through all 20 lots over a period of time which he can afford to do.
4. Mr. Apple gets cashed out of his lots and does not have to worry about the builder being successful.
5. In the event the builder does not complete the purchase, the remaining lots should be more valuable.
6. Mr. Apple will only have to pay income taxes on the funds as he receives them and not on the entire
proceeds from all 20 lots at one time.

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.

Buy A House In Transit

A great way to acquire houses at a very reasonable price is to become acquainted with a house mover. There are many reasons that houses need to be moved, such as:

1) A Freeway being built needing land which currently has houses on it.
2) Developers and Builders clearing off older houses to develop a project, new subdivision, or whatever.
3) Property has been re-zoned Commercial and needs houses to be removed,
4) Etc., Etc., Etc.

A good idea is to contact people who move these houses and bid to buy them. If you can get to them before the house is moved, you can have it delivered to your location.
Further, house movers usually have a Sales Lot where they have houses they have moved which they wish to re-sell. I have bought houses and moved them to a vacant lot. I did a little rehab work and then VOILA! I either sold them or rented them out.

My son, who is a builder, bought a very nice, very solid, older house and moved it to land that he owns. He built a beautiful “New” home, actually incorporating the older home within the new one. You can’t tell now where the older house is (unless you knew beforehand).
There are a lot of vacant lots available in many areas to move houses to. You can move a house on the lot, fix-up, and have it ready for a new owner or tenant a lot faster and less expensive than if you build the house.

So – here is the idea. Look around and locate a professional house mover. Get acquainted and let him/her know that you are interested in buying homes that he/she (notice how I’m trying to be “Politically” correct here), might move. Ask them to let you know when one is coming up so that you can inspect it and maybe bid on it to buy.

Also, look around for vacant lots that are available. Be sure you look for lots which have all UTILITIES available.

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.