Property options, What the hell am I missing?

Hi all,

Firstly, I will state that I am a Noob or whatever the equivilant Property investing term is. I believe in the sharemarket they call us Pigs.

I recently came across a stratergy using options by a guy named Mark Rolton (I can here your hissing & booing now, Seems he's none too popular from what I've read on the net)
Alot of people have been saying that these options he speaks of are Dangerous, & damn near impossible to pull off. Admittedly I've only heard him speak of them on a recorded phonecall & in a 9 page Ebook that was pretty much a transcript of the call, but my understanding of them was that they were pretty much straight forward, Solong as you performed your due dilligence.

1) Locate property of Interest (He suggested RPData, but any way to find a property would work)
2) Make them an offer over their asking price in exchange for Option to buy in X months time
3) Hit up council regarding current & forseeable zoning classifications
4) Get surveyors out to assess subdivision possibilities
5) Find developer who wants to subdivide & develop
6) Sell for tidy profit

If things don't work out, you can walk away having only lost your initial option fee, & being under no obligation to ever actually buy the property.
I knew it'd be harder than what he makes it out to be, but if this is the correct proceedure, It's not Rocket Science!

Can someone perhaps tell me where I've messed up, & give me the correct proceedure as I think I have found a few good development areas In growing parts of Perth.

Oh, and feel free to laugh at & abuse me if I am way off, It's the only way I'll learn

Thanx Property peoples
Boogz

"Time is money!" said the poor man,
"NO! Money is time..." Came the reply

Hi boogz
ok first things first, correct on Rolton. Grab one large barge pole, use to distance, repeat. Do not touch under any circumstances.
Next, yes in 'theory' the process is that simple. Its the complexities that are a great deal more complex than Rolton or other seminar salespeople would have you think.
the issues arise (and happy for others to correct or add to this list as well) in a couple of areas:
1 - locating an appopriate site: depends on your sector, but convincing a vendor who knows what he's got of the 'benefits' of using an option that in Rolton's model doesn't benefit the vendor in any way what so ever, is challenging to say the least. Options in and of themselves are complex and fluid documents, that are different for each deal (outside of the basic Call, Put, or C&P combo). Conditions and structure are where the devil and detail come into play. That said, they are a commonly used, and powerful tool, but a $1000 refundable deposit for a 24 month option? I suppose anything is possible if you find a vendor who's ignorant of what they're sitting on, but I would encourage you to operate transparently and ethically *(only my personal opinion and standpoint, I don't pretend or imply I speak for others).
2 - At present, banks/funders are KILLING developers of all sectors and sizes, including large property funds. There is not a shortage of DA stock out there across multiple sectors including resi, comm, industrial etc. Its about finding a deal that stacks up, and finding a developer who's a) willing to take a punt, and b) has the funds to do it. THAT, in the current marketplace, is a BIG challenge. Most are looking for that 'golden egg' site that minimises their risk as much as possible. Choose your sector, region, site and so on very carefully.
3 - Finding a vendor who's willing to wait 18-24months for their 'possible' payout. Most vendors, fi there's an agent involved or its on the market, want money now now now now now now. Many are resistant to waiting that long, or operating under developers conditions (subject to DA/development agreement etc). This needs to be explained in some detail to them, as many simply don't know. Not their fault, and circumstances will vary with each vendor. Sure anything's possible with persistence, and the reality of it is, if they want to sell to a developer of any flavour, then operating under those conditions is a non negotiable factor in the contract side of things. Sure, again, you can structure it with phased payments over different completed stages of the DA, you can to a JV or any other variation. So one message to take away is this - find a knowledgeable and experience solicitor who's done this kind of thing many times before. I know a few, they may know a few in Perth, can't say for sure yet.
4 - Persistence. As some would have you believe, finding options and having pie eyed vendors who's attention and compliance you can grab simply by offering more money is not as easy as picking daisies in the field. It is time consuming, frustrating, and you will sometime face verbal abuse from vendors. Seriously. They either don't understand, or think you're trying to rob them somehow. Its again not their fault, but we all handle that in our own way I guess.. and yes, some are just ar$eholes.
5 - Cost - only my opinion, but having something like RP Data or PDS live is a very important key tool to have. Can it be done without it? Sure, but it complicates things further not having that RP information, including price, vendor details etc. I use RPD myself and find it invaluable.

All in all, can it be done? Sure thing. Just don't fall into the NLP laden BS seminar spruiking circuit like some have. Stick to the real world, talk to agents, developers, lawyers, town planners etc. Expand your network, write out who you need, and why, and where. Plan. Research. Be patient.

Good luck.

Thanks Matt,

I really appreciate your input on the matter, & I kinda guessed you'd be first on the F@&% Rolton Bandwagon lol

Seems like it'll be a fair whack of work, above & beyond the standard, which is a real shame, because I'm in an area that was starting to be developed before the GFC but there is still plenty of land that lies untouched between different areas of the suburb. only problem is I'm a shift worker so wouldn't likely have the time for all the extra prep work needed.

I guess I'll just have to keep lookin through here for another stratergy that'll help me to cut back my hours so I can put in the time on some larger projects.

If you know of anything that requires little startup capitol & even less prep time, give me a buzz. It doesn't have to make a $1m,
Just getting something coming in is a start. Despite your opinion of Rolton, Surely you must agree with his Catchphrase "You'll never go broke making a profit" :)

Again, thanks for your advice,
Boogz

"Time is money!" said the poor man,
"NO! Money is time..." Came the reply

Gday Boogz
Mate I'd never discourage anyone from giving it a go. If the research backs the area you're considering, and you have the legal, time, and financial resources, plus enough marketing contacts and consultants to do the DA, then go for it. Yes they do take a lot of work, sometimes they come off easy a lot of the time they don't come off at all, but if they were just 'the standard' everyone would be doin them :) Its risk vs reward and payoff etc.
As you say, start somewhere. You could even try and look for a simple block to subdivide, use an option to do that instead of a big land subdivision or DA. Start small. And yes (although i'm goin to be stubborn and say it aint his catchphrase either :P) and agree that you never go broke making a profit!
I certainly wasn't trying to discourage you (or anyone) from doing options. and by no means do I pretend to be the most experienced at them here either. My intention is bring a dose of reality to it all, make sure people are firmly based in the realities of the situation and not caught up in marketing hype.
Maybe a simple buy hold renovate and refinance is a good start.. or vendor financing... or flipping.. lol .. point being is there's a ton of strategies out there.. there will be one that suits your circumstances and goals. Just make a start, do it smart, and go upwards from there.

Keep posting, and us posted.

Cheers!

Thanks again for your advice, athough I probably should have been a little more specific, We've just finished building our first home (Well 15months ago) And we have about $65k in personal loans debt from a failed stockmarket attempt.

$50 a month positive cashflow from an outlay of about a Buck O'five would be magic right now! But only if you can lend me a dollar...

Admit it, I'm screwed!

"Time is money!" said the poor man,
"NO! Money is time..." Came the reply

Never say die mate. Ever. There is ALWAYS a way to do something. Always. IT may not happen as fast as you want, or even how you want it to..but if you stay focussed, motivated, then a solution will come your way.
Use the time it'll take to get some capital growth in your home and reduce some personal debt to learn, educate, make connections witih people, stuff that doesn't cost much if anything to do. As long as its something that contributes towards the end goal. Keep asking questions, there are plenty of people on this forum with bigger brains than me who may well know of ways and means to get you there. No such thing as a dumb question in my book.

never admit defeat. Defeat, like treason, is all about timing and perspective... think about it.

Just wanted to throw out a big thanks for this post. This is very thought provoking. I have never thought of using property options as a way to make money from property. So this is an exciting road to look down.

I defiantely won't do this any time soon. But it is definately a viable option for me in the future.

Has anyone done options on property in Australia? I would love to hear your story.

Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click Away

Hi Ryan,
I  have done some option deals ..with cash in the bank. Happy to talk whenever it suits .
Thanks
David

@ David - Not interested at the moment. I am a very focused investor and at the moment I am focusing on positive cash flow deals. They are the easiest way to make in the property market (I think). Once I have more cash flow and more time on my hands then I will try my hand at property options just for the fun and challenge of it.

@ Boogz - Have you ever thought about investing in positive cash flow property? It doesn't have to be expensive. I am about to close on a property that is costing me 18k to invest in and produces about $20/week positive cash flow and should produce about $50-$70/week in 6 months time (after some minor renovations).

There are lot of methods to investing. I am not against Mark Rolton, in fact I don't even know who he is. But I have tried my hand at vendor finance and even that can be extremely difficult and the opportunities for vendor finance are few and far between. I can imagine options would be even harder. Most vendors don't have a clue what you are talking about when you mention vendor finance or options. Even most real estate agents have a hard time.

It can be done...yes. But needs a lot of practice and education. The paperwork needs to be precise so you will probably need a good solicitor. It is not as easy as the make out to be (though once you have done a few deals it will be as easy as they make it out to be)

Good luck

Ryan McLean
http://CashFlowCapital.com.au
Positive Cash Flow Properties Are Just a Click Away

Hi David,

Would you care to share some of your experiences in Property Options? I'm not really after specifics as such but would love to know how you got into it and what type of deals you have done that gave you cash in the bank.

Cheers

Hi guys,
Just felt obliged to say Matt007's comments were brilliant reading - and what this forum is/should be about. Love being positive, but you have just got to be practical and realistic too.  Great stuff.

Cheers

Tips In Investing A Property:

- Take a long-term view
- Positive vs. negative gearing
- Consider using the equity in any other property you own.
- Choose a loan tailored to your current needs.
- Use a buyers agent/property finder
- Visit a financial adviser and/or accountant

Home and land packages

hi,

i am looking at getting into property options. i was thinking all this focus seems to be from a one man band perspective. wouldn't it be better to have a solicitor, town planner and architect on your team?

as for finding possible houses/land to develop. would it be best to go to the council and ask what is expected to change zoning, then to approach the people who live in that area and ask them if they would like to get into an option (even if they are currently not looking to sell)?

am i to naive in all of this?

thanks to eveyone else who posted. i agree this topic is REALLY interesting

Hi 4141...
on solicitors etc, definitely, get 'em on your team, A good lawyer, agent, town planner, architect maybe, builder, form relationships with them even if you don't have deals, let them know what you're planning on doing, initially it'll be 'ok we'll see if you do' but if/when you turn up with something, the people will be there in place.

On finding land, believe me people wish councils would disclose all the upcoming zoning changes etc, large developers spend a lot of effort anticipating this and landbanking as much as they can. again, I think it's worth forming a relationship with the local planning and development people. Not sure if they'll disclose, (or even know) whats coming up or not, but its worth a go!

Its about perseverance and patience. LOTS of both. You may have to 'nearly get' 100 of them before the one comes your way.. just keep going.

Boogz great thread, options are great fun ... Matt excellent information and advice.

Boogz just because your situation may leave you in a position not to do anything currently, find someone whom is in a position to do something (cash'd up friend/family/investor) whom doesnt know these terms or is risk adverse and utilise your experience/knowledge to give you both a return. You may loose out on some profit but the phrase "50% of something is better than 100% of nothing" is something i will die by!

As Matt said there are tonnes of developers out there sitting on small and large developments due to lenders, i would say that if you are going to commit to an option agreement/development i would personally see it through to the end. DO your research, make sure you give the vendor something they CANNOT refuse as this is the 'real life' perspective of getting these deals done!

Lastly if your going to go down this path, ALWAYS have an exit strategy in place NO MATTER WHAT!

Enjoy

Trent Giumelli - Managing Director - Australian Investors Finance - 'assisting people to grow wealth through property'
0404 902 623 | info@aifinance.net.au | www.aifinance.net.au
Grandeur Yeppoon www.grandeuryeppoon.com.au - where every unit has a view