Hi all,
I have done quite a few searches on the topic of options and flips, and found a great deal of useful information, so thank you to those of you who post regularly. There is one question which I could not find the answer to – If and when I use an option to control a property, how can I keep the original purchase price secret from the investor I sell the option to, and how do I keep the sale price that the investor is willing to buy at, a secret from the seller? I have been told that many times, the seller pulls out of the deal, whether he is legally able to or not, once he sees the price that the investor is willing to buy at. By the same token, the investor is often hesitant to buy the option, once he sees the original price I have negotiated with the seller. Both parties would be tempted to circumvent the middle man (me).
Options sound like a great, well, option for me (couldn’t avoid the pun), mainly because the stamp duty will be greatly reduced, and I wouldnt have sleepless nights for two or three months wondering if the new investor can buy the property from me as in a normal flip. Once the the option has been sold to an investor for a fee, I have no more interest in the property. And I find undervalued properties quite often, as I am only working part time, and have lots of time to find deals.
So if anyone knows of an appropriate secrecy clause in the options contract, that would be great.
Regards
Captain_Picard.
Hi CP
Simple answer there isn’t one.
The whole reason that you take an option on the property is that the holder of the Option has the rights but not the obligation to purchase the property at a given time and at a given price.You merely assign the Option for a fee and the purchaser to whom the Option is assigned has this right.
In any dealings transparancy is important and therefore you should consider ways to make the deal attractive to your buyer rather than hide the true purchase price from him.
Richard Taylor
Residential & Commercial Finance Broker
**Lodoc Commercial loans from 7.39%**
Licensed Financial Planner
Ph: 07 3720 1888
[email protected]Richard Taylor | Australia's leading private lender
Hi there Captain!
I am in the same boat as you, (working part time and finding it very easy to find undervalued property) so would be very interested in any responses you recieve to this posting. My mind is now ticking over furiously on this topic yet again, just as it has in the past with property and business deals/ideas, it comes down to trust, doesn’t it? And to a greater degree mitigating risk through contract/s and or written agreements/understanding, “communication”…
RELATIONSHIPS!
Look forward to conversing further on this topic…
Jarrah “ask and ye shall recieve”
Some savy sales agents use options (if they principal allows it).
If you set up the infrastructure (ie legals, etc) then why dont you approach your local real estate companies and offer your services for a fee? That way they dont have to setup or take the risk in house.
Hey there Captain…..
I have done some of these and what I do is this:
I have them instrumented in such a way that I do not have to show the new option purchaser any of my paperwork as they see a blank sales contract with no prearranged price in there… so you agree on the price and write it in and then at settlement the original sellers solicitor that you signed up the option with…. cuts you a cheque for the difference between your strike price and the new purchase price!….“legal Instruments are the key to sucess and are only limited to your imagination”
Hi there
I am in the process of onselling some land that I bought using an option. I have not disclosed the onselling price to the original vendor, there doesnt seem to be any need to? He just wants the money that we agreed to initially. He understood that at the time that I took out the option that I would have exclusive rights to do what I like within the option period. We were tossing up whether to develop or onsell, and decided to the latter option. So we actually onsold the land, not the option. I personally dont see any problem with this transaction, we are all getting what we want……….arent we?Kiwi
Hate to say you could not do it that way.
You choice is that you either settle on the low price pay the stamp duty and the have a new contract for a higher price which your buyer signs and then he will not be able to find out what you paid for the property or you exercise a Put & Call Option and get him to sign the original contract.
No Vendors Lawyer worth his salt is going to increase the original purchase price and pay you a cut of the sale proceeds unless you have an agreement with the Seller that you will receive a commission on the sale. Dangerous ground as you may need to be licensed depandant on the particual State you are operating in.
If this is the case then why would the original Seller not increase the price and sell it a higher figure.
Richard Taylor
Residential & Commercial Finance Broker
**Lodoc Commercial loans from 7.19%**
Licensed Financial Planner
http://www.yourstatefinance.com
[email protected]
Ph: 07-3720 1888Richard Taylor | Australia's leading private lender
Quote:Originally posted by Qlds007:Kiwi
Hate to say you could not do it that way.
You choice is that you either settle on the low price pay the stamp duty and the have a new contract for a higher price which your buyer signs and then he will not be able to find out what you paid for the property or you exercise a Put & Call Option and get him to sign the original contract.
No Vendors Lawyer worth his salt is going to increase the original purchase price and pay you a cut of the sale proceeds unless you have an agreement with the Seller that you will receive a commission on the sale. Dangerous ground as you may need to be licensed depandant on the particual State you are operating in.
If this is the case then why would the original Seller not increase the price and sell it a higher figure.
Hi Richard …. interesting that you can’t do it … That means I have not done it at least 6 times [biggrin]
One of them I actually forgot about and all of a sudden received a check from the Vendors solicitor. It is not a commission that I am getting paid as I have control for a price of $X and then find a buyer that is happy to pay $x+ $y.
As the contract (which must accompany an option to hsow what legal possession was included in the option) was drawn up with no final sales price and was not signed by myself or the buyer untill I Gave written notice of my intention to assigne the option…… “no Stamps are due by me as I have never owned the proeprty … only controlled it….
Any how …. I could go on and on for a hundred yeasr …. if it can’t be done … then I guess you are correct.Basicaly all I have to say is you can do this with any kind of property… Bikes, Cars, Wine bottles etc (anything that has a value that someone would like to have the opportunity -but not hte obligation to purchase for a mutually agreeable price and by a predetermined duration… you name it and it can be put up as an option…
Cheers,
KiwiKiwi
So your saying you sign an option, ie buy an option, then negotiate with the new on-purchaser, but they do not see your purchase contract or realise what you paid for it. Do you then re-assign your option? Wouldn’t they other party see your purchase price on the option?
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Exactly my point Terry.
Also believe you have a duty of care to disclose certain facts.
Richard Taylor
Residential & Commercial Finance Broker
**NODOC loans from 7.14%**
Licensed Financial Planner
http://www.yourstatefinance.com
[email protected]
Ph: 07-3720 1888Richard Taylor | Australia's leading private lender
The new purchaser dos not even see my option as it has nothing to do with them as is directly with the purchaser. I sign nothing but the original option. The seller then arranges the contract to go out to the new buyers solicitor (once he receives a holding deposit of course). Then the sale proceeds as normal and the sellers solicitor make me out a cheque from the proceeds with the difference between my option price and the new price….. Simple!
Sometimes I will give the option directly to a buyer for a fee also…..
As for duty of care …. I am not an agent and I am not a banker or broker … Only a private seller…. Since I have the option on the property … I have a financial interest (partial ownership via option) in the property…. this means as per the law….. I have every right to privately sell what is mine to anybody I please….. It is just like selling my own home … gotta love it .
Kiwi[biggrin]Originally posted by Terryw:Kiwi
So your saying you sign an option, ie buy an option, then negotiate with the new on-purchaser, but they do not see your purchase contract or realise what you paid for it. Do you then re-assign your option? Wouldn’t they other party see your purchase price on the option?
Terry, Yes they see the contract but there is no price and no purchaser listed …. I write in the price that they agree to pay (They initial… and I get hte owner to sign the contract and simultaniously I will excercise my right to excercise the right ot nominate a purchaser for the contract.
So I am not hiding anything in the contract as they are signing/filling in the original that will go to both parties for exchange of contracts. If hte buyer is happy with the price and hte seller is happy that the house is sold … end of problem … a solution is found.
End of the day options are so flexible and can be very complex or simple as the challenge arises…[biggrin]
Cheers,
KiwiBrilliant. Thanks for sharing Kiwi.
Hi all,
I have found reading this thread though provoking and it has sparked an intrest in doing some further research on this topic.
Can anyone provide any leads to Websites, books etc on using options to by and sell property.
Thanks
MulderI have personally done transaction over $10M in Transfer by Directions and over the same again using Call and Put Options.
I can guarantee you in Qld it would be illegal.
Richard Taylor
Residential & Commercial Finance Broker
**NODOC loans from 7.14%**
Licensed Financial Planner
http://www.yourstatefinance.com
[email protected]
Ph: 07-3720 1888Richard Taylor | Australia's leading private lender
Kiwi
I am a bit confused. I have sold a few options over property, but never assigned an option or onsold a property this way.
Lets try to spell it out in simple terms.
You find a property, and instead of signing a contract or sale, you buy an option over the property. ie sign an option contract. This contract probably allows you to assign the option. Is this correct?
You then go and find someone who wants to buy the property. You then get them to sign a constract of sale with the original vendor. They don’t see your price as you have not signed this contract. Your option contract would have the price at which you could buy the property for. Since your option contract allows reassignment, you tell the orignal vendor you have assigned the option to Mr X, and Mr X will be the one signing the contract of sale.
Sounds good so far. I beleive that as you have an option over the property, then you have a legal interest in it, and would therefore not need any licencing (RE Licence etc) to sell this property.
Is that how it works Richard?
ps Kiwi, are you talking about Australia here or NZ. If Aust, which state?
pss. Hope you don’t mind all these detailed questions. I am not trying to be smart, just trying to figure out something I have never done before.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi all
By saying ‘you ensure that you are able to reassign the option’ do you mean that you sign the contract ‘and or nominee’?
Thanks
Interesting comment about not owning the property. Stamp duty is paid on the contract value, not the ownership of the property. The Stamp Duties Office will charge you stamp duty on the value of the contract. If you have done multiple deals in this way and not paid any stamp duty you may want to seek some legal advice before doing any more.
Happy investingJust to correct MCF
Stamp Duty is only payable once the contract becomes unconditional. In certain States on Oz duty is payable on the Option Contract.
With a Call Option you have the right but not the obligation to enter into the Purchase Contract and therefore the person / entity nominated to purchase the property will be the one liable for stamp duty.
You find a property, and instead of signing a contract or sale, you buy an option over the property. ie sign an option contract. This contract probably allows you to assign the option. Is this correct?
You then go and find someone who wants to buy the property. You then get them to sign a constract of sale with the original vendor. They don’t see your price as you have not signed this contract. Your option contract would have the price at which you could buy the property for. Since your option contract allows reassignment, you tell the orignal vendor you have assigned the option to Mr X, and Mr X will be the one signing the contract of sale.
In essence Terry thats correct.
Richard Taylor
Residential & Commercial Finance Broker
**NODOC loans from 7.14%**
Licensed Financial Planner
http://www.yourstatefinance.com
[email protected]
Ph: 07-3720 1888Richard Taylor | Australia's leading private lender
Richard, thanks for your comments. Can you please clarify for me…”You then go and find someone who wants to buy the property. You then get them to sign a constract of sale with the original vendor.” at what price is this contract written?
Is it written at the original price PLUS your option fee? Or, is it written at the strike price of the option?
if it is written at the original pirce pLUS your option fee, it is safe to assume that the original vendor would be the one paying your option fee. is this correct?
If the contract is written at the original strike price, and you charge a fee to the ultimate buyer, then surely the buyer must become aware of your original purchase price when they execute the contract.
Thanks for the help.
mancityfan
You must be logged in to reply to this topic. If you don't have an account, you can register here.
