Forums / Property Investing / Help Needed! / Investing with Options

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  • Profile photo of FireCaesarFireCaesar
    Member
    @firecaesar
    Join Date: 2004
    Post Count: 71

    I’m thinking of investing with options and would like your input on my following idea:

    1) Look for motivated sellers
    2) Contact them and offer some money for an option purchase
    3) That done, I’ll look for other investors/buyers and sell the option for a higher price

    Some background info is needed here. I’m 22 and don’t wish to get into too many paperwork.

    Anyone done something like that before? Is the idea feasible?

    Profile photo of williwilli
    Participant
    @willi
    Join Date: 2002
    Post Count: 186

    FireCaeaer,

    I have heard of this stratergy working in a number of circumstances and can create a fantastic return.

    … my only ‘concern’ is that the market is still ‘viewed’ a sellers market and until it dramatically shifts, the power of buyers to be able to be creative like you suggest is limited.

    This doesn’t mean that there are no motivated buyers out there – there always is.

    The possibility is only really limited to your persistence and creativity.

    The more questions you ask the sooner you will get a deal.

    Best of Luck

    Willi

    …Beware of the dreamtakers…

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Sounds good in theory……

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of FireCaesarFireCaesar
    Member
    @firecaesar
    Join Date: 2004
    Post Count: 71

    thanks for the replies.

    1) Has anyone ever tried this strategy here? How much did you pay for the option?
    2) Anyone wants to combine our brains in Brisbane?

    Profile photo of westanwestan
    Member
    @westan
    Join Date: 2002
    Post Count: 1,950

    Hi FireCaesar

    i’m with the other guys on this one sounds great in theory but actually finding people that want to do it is not easy. In a market where there are more buyers than sellers its easy to wait for a buyer to come along who will hand over the money.

    But don’t let us put you off give it a go i’d love to hear that it works for you.

    regards westan

    I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    One of my clients sold an option to a developer. I think the option fee was relatively small – about $2000 on a $500,000 property, but the term was short – one year, to let the developer get council approvals etc, and she was paid about $800,000 for the property. The developer made millions by buying the whole block and developing units.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Fire

    If you now Brisbane you now the area I am talking about.

    I took an option on the Nundah Bowls Club for which we paid $1000. The underlying Contract price was $800,000. Subsequently sold the option for $1,350,000 to another developer.

    The property was then sold twice more and the current developer paid $1,800,000 for the same property.

    It’s ok I am not disclosing anything which isn’t available by searching RP Data.

    Currently I am in the process of negotiating 2 Options on 2 separate development sites. I is a child care centre in the Valley.

    Take my word it can be done on a regular basis you just need to now your market and the Town Plan.

    Cheers Richard
    richard at fhog.com.au
    http://www.fhog.com.au

    There is no such thing as a problem.
    Just a solution waiting to be found

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of equitykingequityking
    Member
    @equityking
    Join Date: 2004
    Post Count: 17

    Richard,

    In my experience options are normally 5% of the purchase price. How did you secure the price on an $800,000 property for a measly $1000?

    How long was the option valid for?

    Cheers,

    Jordan

    Profile photo of FireCaesarFireCaesar
    Member
    @firecaesar
    Join Date: 2004
    Post Count: 71

    Richard,

    Couple of questions:

    1) Did you have partners or are you working solo on all these?
    2) You mentioned know your market and town plan … Can you expound a little more on what you mean?

    Live With Passion,

    Kelvin

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    My guess is by offering a high strike price. If a place is worth $600,000 as is, and you have the foresight to see it could be worth $1mil if you do x do it, then by offerinng $800,000 you are offering to pay more than market value you can probably get a cheaper option fee, and still go and make a huge profit.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of befreemumbefreemum
    Participant
    @befreemum
    Join Date: 2003
    Post Count: 2

    Hi all – excuse my ignorance (I’m brand new at this) but what is an ‘option’?[dazed] Is the idea that you sell the property on for more than you promised to pay for it before you have to settle? Where do you find the property – would it be something that’s already for sale?

    Many thanks for your wisdom.

    befreemum [baby]

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Jordan

    I dont now where you have been but i would never pay 5% for an option fee.

    I have been developing in Brisbane since 1994 and never paid more than $10000 as an option fee.

    One of the projects we are developing at the moment is a child care centre and worth over $3M at present. We have paid to date $3,000 with a further $3000 payable in 3 months time.

    Cheers Richard
    richard at fhog.com.au
    http://www.fhog.com.au

    There is no such thing as a problem.
    Just a solution waiting to be found

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of techatecha
    Member
    @techa
    Join Date: 2004
    Post Count: 79

    Richard.

    Just trying to get my head around this.

    Option on Bowling club,$1000
    You on sold it(the option)for $1.35 mill.
    The owner of the option continued to on sell.
    What did the bowling club end up with?

    As it appears that the option to buy was sold not the underlying property.

    (Ive done the same with fast moving land parcels.Downside is that if you can move it quickly youll have to settle).

    tech

    Humans are the DUMBEST of creatures.
    They do the same thing day in day out and expect a DIFFERENT result.

    Profile photo of techatecha
    Member
    @techa
    Join Date: 2004
    Post Count: 79

    Or roll over on your option.

    Humans are the DUMBEST of creatures.
    They do the same thing day in day out and expect a DIFFERENT result.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Techa

    The eventuall purchaser of the bowls club ended up with a site for 55 Townhouses.

    We knew from day 1 that we could get the development approval but didnt think we get as many.

    With the growth in development sites in the Brisbane area transaction such as these are not that hard.

    The hardest part is identifing the next development opportunity.

    Cheers Richard
    richard at fhog.com.au
    http://www.fhog.com.au

    There is no such thing as a problem.
    Just a solution waiting to be found

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of techatecha
    Member
    @techa
    Join Date: 2004
    Post Count: 79

    Richard.

    yes I understand.

    but back to the question.
    Your original investment for the option was $1000.

    You sold it then for $1.350 mill.
    Making 1.349 mill from the original investment?

    Can you just clarify the numbers.
    What you got
    What the Bowling clud got.

    In the $1.35 mill option deal.

    tech

    Humans are the DUMBEST of creatures.
    They do the same thing day in day out and expect a DIFFERENT result.

    Profile photo of FireCaesarFireCaesar
    Member
    @firecaesar
    Join Date: 2004
    Post Count: 71

    techa, I think you misunderstood.

    What Richard did was hold an option to purchase at $800,000. Eventually, the option to buy was used by another party who paid $1.35M.

    Which means to say he made $1.35M – $800k – $1000 (option money) from the deal.

    It works a little like flips.

    Richard, you mentioned knowing your market and town plan … Can you expound a little more on what you meant?

    Profile photo of techatecha
    Member
    @techa
    Join Date: 2004
    Post Count: 79

    Ok so theortically (and I guess practically)he sold his option for 550K and the Bowling club got their 800K.

    The buyer paid for Richards iption to be able to buy the land after Richard gained approval for 55 Units.

    So Richard you on sold the option (approved).

    Have I got it now?

    As I said Ive done this with land and off plan apartments but nothing like the $ return mentioned here.

    Im in AWE!

    Humans are the DUMBEST of creatures.
    They do the same thing day in day out and expect a DIFFERENT result.

    Profile photo of hoarelhoarel
    Participant
    @hoarel
    Join Date: 2003
    Post Count: 39

    Hi all,

    How do you make application to council for a development when the property isn’t even in your name? Do you notify the seller of your intentions and then apply on their behalf. Also I assume the costs of applicatoin and planning are at your own expense.

    Thanks

    Luke

    Email: [email protected]
    Web: http://www.changingplaces.com.au

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