Option to buy!

[Hubush]

G'day guys,
Could someone clarify when you use an option to purchase property, you are merely prolonging the purchase for what ever creative reason!

My question is: when the option expires, does this mean you then exercise the option & then exchange with a settlement date as usual or exchange & settle at the same time?

Any reply would be great!

 

[see_change]

My understanding is that you could structure it however you want, but given that people need notice to settle , you'd have to have some trigger occuring to give you time to organise settlement . THis would normally be signing a contract.

JK will correct me if I'm wrong.

see change

 

[Aceyducey]

Hubush,

Options must be exercised BEFORE they expire.

After expiry you no longer own the right embodied in the option.

Normally you would go through the normal exchange & settlement process - though could exchange at the time the option was signed & just settle at the time you decide to exercise the option.

Remember that buying off the plan is effectively a form of option (though not a 'pure' one).

Cheers,

Aceyducey

 

[Hubush]

Thanks for the response guys,

I do have a question for AceyDucey's reply!
If you exchange at the time of signing the option then settle at the end of option! what does that achieve as I could have followed the regular process of buying! or am I missing something?
I could have just asked for an extended settlement with the vendor at the time!
Another scenario:
If I decided to do a flip! & onsell my option before it expires to another party, then we would all have to work out both exchange & settlement dates
Can you see where Ime coming from, because at this stage I don,t know how to get there!

Hope you can enlighten me!

Many thanks

 

[Aceyducey]

Yup, effectively you are simply having an extended settlement....but there may be provisions in the contract that let you out of it if you choose not to exercise the option.

The advantages are that you cannot be gazumped (sure you could sue the seller if they renege on the option - usually because they were offered more money a few months after the option is taken out - but why go through the pain) and the seller, who may be unfamiliar with options, has a great deal more comfort in the process.

If you are using options watch out for stamp duty implications. Flipping an option onwards may still require you to pay stamp duty on the property depending on how good your legal advice & structuring is.

And you may need to specify in the option that it is transferrable so you don't get caught having to buy & then onsell the property.

We investigated options - however had difficulty locating a RE Agent & Vendor who were happy to work with them (in the areas & price points we were considering) particularly as the market was booming & there was little advantage to the seller unless we paid above market now to compensate for the lost CG during the time before the option was exercised.

You do need to find educated sellers!

Cheers,

Aceyducey

 

[paulzag]

Options are one tool in an arsenal.

Noone I know would normally exchange on option entry. It extends the costs too high.

Traditionally (if there is such a thing) options are written at a price above current percieved market value. That way the vendor has an interest in granting the option.

The option holder then does a DA or other creative process to add significant equity to the deal.

Then the option is exercised or sold.

If the option holder can't make the requisite equity magic happen. Then they allow the option to expire (or if they want a great reputation) notify the vendor that they no longer require the option.

Why release an option early? To use that vendor as a refereee on the next option deal.

Regards

Paulzag
Dreamspinner

 

[Adrian N]

Hi Hubush,

To cut thru all the BS.

See a GOOD spec property solicitor to set up your options on properties (will cost you around $600 +-).
There is NO stamp duty payable when you SELL your option on a property - you are selling the option NOT the property.
Most Vendors will NOT accept options because they are too scared/Ignorant of them and they are not a common enough occurence (a put/call option may be a 'little' more enticing to the Vendor because they can force you to buy).
50%-75% of RE agents dont have a clue about options and will work this against you.

Good Luck.

Adrian

 

[Aceyducey]

Adrian is mostly correct.

Just bear in mind that stamp duty is a state-based tax & as such you must look at the legal provisions in the state you are raising the option in.

I believe that few states (I think QLD only) allow you to option property without incuring stamp duty....

He's spot on about the willingness of vendors & understanding of Agents though. Our business plan called for us to option property in NSW, however we had to revise this as we could not get the agreement from vendors (partially due to a rapidly rising market) and because double stamp duty DID apply.

Cheers,

Aceyducey

 

[Adrian N]

Yes Sorry - I should say that I do live and deal only in QLD, BUT I was taught this in a Seminar in NSW..!!

Good Luck,

Adrian

 

[Bmok]

G'day Adrain,

Welcome to THIS Forum. 8 posts on your first day!!!

That was an excellent seminar that we attended in Sydney. You'll have to keep me in the loop on your Camp Hill dev site.

Most R/E agents that I have spoken to have shown little understanding of how Options work and so they don't work hard enough in trying to convince the sellers on the benefits that they may receive. Hopefully time will change all that.

I am intending to deal directly with an owner on a possible dev site and will be able to fully explain how the Option will work and let him see how it will be to his benefit. Everyone needs to come out a winner or else this site won't proceed.

Cheers,
Bernard

 

[rodimus]

Options in Vic

Does anyone know a good options solicitor or options writer in Vic?

Can i just write up the options myself on my pc?

Also, does anyone know if onselling an option to another buyer will incure stamp duty in VIc?

thanks

 

[Adrian N]

Hi Rodimus,

If you have adequate understanding of how to write up options on your pc then it will be ok - but rest assured any 'other party' in your deal who has at least half a brain will take your options contract to their solicitor to have them go over it with a fine tooth comb... If your options contract isnt up to the other parties liking then they will have you modify it (this is where you should have a thorough understanding of the law so that you know how to modify it without you yourself getting ripped off)... My Advice find a good solicitor to do it for you.

Ring your State Law Society (in QLD its called the QLD Law Society) and have them recommend one for you - take this with a grain of salt, but its the best I can do

Cheers and good luck.

Adrian

ps: I think paying the $600 or so dollars is a good investment for a contract.


Does anyone know a good options solicitor or options writer in Vic?

Can i just write up the options myself on my pc?

Also, does anyone know if onselling an option to another buyer will incure stamp duty in VIc?

thanks

 

[frehnejc]

Hi,
I was looking on the options on doing a development and came across this thread (sorry for coming in very late). I am in WA and was wondering if I can use this setup to purchase a property for development. So in essense:
1. Get the vendor to agree on an put/call option sale, with the buyer having full access to the site including demolition of existing residence after DA.
2. Make the option expire after handover occurs and titles are ready to onsell to purchasers.
3. Obtain the necessary DA approvals as soon as the vendor accepts the put/call option.

Would this be possible in WA to transfer the stamp duty obligation to the end purchasers? How do you get something like this written up?

 

[tubs]

I also assume you'd need to agree on the terms of the contract of sale when doing the option. Otherwise you'd be able to exercise the option, but then force your own terms and conditions on the vendor, like a 5 year settlement! So you'd need to make sure that the option was for an agreeable contract if you exercise it (or you may have wasted your money for nothing).