Buying/Selling Using Options

[hutch]

Hi,

I was wondering if there are any legal issues that could come from buying or selling using options. For example:

- I buy an option on a $150k house for $1500 and is exercisable within 6 months.
- I spend $5000 improving the property which raises the sale value to $175k over the 6 month period.
- I sell my option to buy for $150k to someone for $25k giving me a net profit of $18.5k

Could this cause any legal implications as I haven't actually purchased the property but bought and sold an option for a profit?

Mathew.

 

[Aceyducey]

Hutch,

You can be required to pay double stamp duty (that's why we didn't do this with our last reno).

Also you need to ensure the option is VERY clear so the vendor can't claim part of the profit.

Do a search on the forum for options as this topic has been discussed before (button in top left corner) or: http://www.somersoft.com/forums/search.php?s=

Cheers,

Aceyducey

 

[agent007]

_____________________________________________
You can be required to pay double stamp duty
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Why he would have to pay any Stamp duty at all if he's just selling an option?. Based on what he said, he's name hasn't been in the title?

Regards,

James.

 

[Andrew]

Are people really doing this? I know options
are common on commercial properties but
I wouldn't think that it would be easy to
convince an unsophisticated vendor that
something like this is in their best interest.

How are you able to swing this?

Wouldn't it be easier to go for a long settlement
with access (and the standard "and/or nominee"
clause in the contract) than explaining an
option to someone who has NFI?

andy

 

[agent007]

Andrew,

I know of people that has done it with residential land. They put an option pre-registration and then, when land is registered they sell it for a profit. Their names are never in the title so, they don't pay any stamp duty.
Agree with you, that it'll be difficult to do it with a mom/dad vendor. However, they deal directly with developers. In that way, The developer also benefits since Banks will lend more money to them.
Regards,
James.

 

[hutch]

Andy,

The reason I want to use options is so that I don't have to purchase and go through the process of getting a loan and paying the associated costs.

I have a strategy to use with vendors, but before I try it I wanted to find out if there were any legal implications with using options.

Mathew.

 

[geoffw]

There's a good book on options- the Australian Lease Option Handbook- http://www.creativerealestateinvesting.com.au/attent.htm

$129 for a hardcopy version, or 79 for an electronic version.

Probably worth it if if you're serious about it.

 

[hutch]

Thanks Geoff, i'll have a look at it.

Mathew.

 

[always_learning]

The use of options appear in a logical sense to be a absolutely marvelous and fantastically powerful way to generate equity, control your risk and "gear up", you can hold a lot of options with $100,000.

The only problem of course is executing (doing it in real life), by my moral code I would need to find sellers that are genuinely advantaged taking up an option.

Does anyone know of someone "nice" who is involved in options?

Can anyone recommend the options handbook, the website "get rich quick, magic pill" marketing is a real turn off.

 

[JWT]

Options and Stamp Duty

Originally posted by agent007
Andrew,

I know of people that has done it with residential land. They put an option pre-registration and then, when land is registered they sell it for a profit. Their names are never in the title so, they don't pay any stamp duty.

Regards,
James.

Hi James,
I use options on vacant land regularly. Under the revised Stamp Duties Act (QLD) duty is payable on the option. An option is an instrument of conveyance and therefore is assessed at face value. Yes, this does mean you pay double duty when using options.

The instance in which duty is avoided is when you hold an option over a property and transfer ownership 'by direction'. This means that the Titles Office Transfer Form notes your vendor as the seller and the person you on sell to as the buyer. You are not noted on the transfer form therefore are not requested to pay duty. PLEASE note that duty is still payable on the option, and you are required at law to declare the option to the titles office so that they can assess duty payable. Ignorance is not a valid excuse.

It is a bit scarry. Dont worry, many option users are not paying their stamp duty obligations, either knowingly or otherwise. The titles office is well aware of this. They did a crackdown on this last June, hence the reason why I am aware of these finer details.

Regards,
John

 

[Ross Sondergeld]

What about stamp duty !!!

Hi,


Have a look at the revenue ruling in your state for what you're doing... I think you'll find that you pay stamp duty if you have an interest... and you transfer that interest (general rule). Every state is different...


Ross Sondergeld
Ross for Property