teamplayer
May 10, 2015, 06:55 AM
Hi Diem, Gordon.
When I first learned about option contracts many. many years ago,
I thought they were the greatest thing since sliced bread. It's amazing
the power you can get from a little money and a huge amount of leverage.
In one of my collection of real estate books. the author described how back
in the nineties many houses that were rented had an option to to buy in the rental contract.
Almost no one paid any attention to this option.
Then when the great real estate boom occurred a lot of these houses were
now worth much more money. Someone might have a house with an option
to buy for 200K but the house is now worth $350k!
Again, most of these renters did not realise what they were sitting on.
But some savvy investors would seek out these houses and buy the renters
option and made huge profits on these houses. In at least 2 cases the
landlords went to court to stop these sales, but the court rule them
perfecty legal. Even today there may be renters with options to buy that
are far less than the value of the house, coming across one of those is like
coming across a pile of gold bricks. The trick is to find them. The book
mentioned some methods.
Also the author of the famous classic "No Money Down" described how
once he took a fancy to a commercial building. He found out from
the renter that there was an option to buy in the lease. If I remember
correctly. The building could be brought for 200K but was actually worth
about $415K. He made a huge killing on that one.
I have heard of someone getting an option on over a million dollars worth
of land for one dollar. Now that is leverage!
Why would someone grant the option so cheap? Here is one scenario.
Owner has about a million dollars worth of land on the outskirts of a city.
Mr savvy investor finds out that expansion is planned for that area and big
operators are buying up land. My savvy investor goes to the owner and says
I want an EXCLUSIVE option to buy your property for 1.5 million dollars
I wll pay one dollar for the option which will expire in 2 months.
The owners is happy to grant the option since he believes the land is worth
only a million. It is actually worth much more than that now
Now Mr Savvy Investor sells his option contract to one of the
wealthy investors for 100K and runs off to the bank. That is the
power of options. This can be done on much smaller levels too.
Trevor
When I first learned about option contracts many. many years ago,
I thought they were the greatest thing since sliced bread. It's amazing
the power you can get from a little money and a huge amount of leverage.
In one of my collection of real estate books. the author described how back
in the nineties many houses that were rented had an option to to buy in the rental contract.
Almost no one paid any attention to this option.
Then when the great real estate boom occurred a lot of these houses were
now worth much more money. Someone might have a house with an option
to buy for 200K but the house is now worth $350k!
Again, most of these renters did not realise what they were sitting on.
But some savvy investors would seek out these houses and buy the renters
option and made huge profits on these houses. In at least 2 cases the
landlords went to court to stop these sales, but the court rule them
perfecty legal. Even today there may be renters with options to buy that
are far less than the value of the house, coming across one of those is like
coming across a pile of gold bricks. The trick is to find them. The book
mentioned some methods.
Also the author of the famous classic "No Money Down" described how
once he took a fancy to a commercial building. He found out from
the renter that there was an option to buy in the lease. If I remember
correctly. The building could be brought for 200K but was actually worth
about $415K. He made a huge killing on that one.
I have heard of someone getting an option on over a million dollars worth
of land for one dollar. Now that is leverage!
Why would someone grant the option so cheap? Here is one scenario.
Owner has about a million dollars worth of land on the outskirts of a city.
Mr savvy investor finds out that expansion is planned for that area and big
operators are buying up land. My savvy investor goes to the owner and says
I want an EXCLUSIVE option to buy your property for 1.5 million dollars
I wll pay one dollar for the option which will expire in 2 months.
The owners is happy to grant the option since he believes the land is worth
only a million. It is actually worth much more than that now
Now Mr Savvy Investor sells his option contract to one of the
wealthy investors for 100K and runs off to the bank. That is the
power of options. This can be done on much smaller levels too.
Trevor
