Property Options

Admin, I couldn't find a Property Options thread, so I started this one.

I've recently joined the property options game, and I'm at the stage of learning the rules.
So far I've made the following observations:
***It seems that we need to find "motivated sellers" for the strategy to work. In the words of someone at another thread, a motivated seller is "someone who doesn't know what he's got." Other definitions of "motivated" mean "desperate." If sellers did know the (potential) value of what they've got, why would they sell to us at way below market price, when for a paltry investment in strata-titling, subdivision, or Development Application, they could cut us out completely and sell directly to the people who buy from us?
To further highlight this point, take a look at the explanation of the options process on Mark Rolton's site:
http://propertyoptions.com.au/Home/How-It-Works.aspx
There we see our option holder netting a $700K profit for the meagre task of achieving approval on a DA. This raises several questions:
*Why doesn't Seller wake up to what's going on, arrange the DA himself and go straight to Massland, or some other buyer? Is it because Seller's desperation blinds him to the opportunities?
*Why does Massland see fit to pay Option-holder $700K for only some pretty basic legwork? For that money they could hire someone fulltime for 7 years who could surely source more deals for them more cheaply than Optionholder?
*Buyer ends up paying $1.7M for the property. How much does his development cost and how much does he sell it for?
*If the astounding testimonials on Mark's site are true, why isn't everyone out sourcing deals, and how long will it be before they are?

It's still early in the game so, leaving these questions unanswered for now, I present my understanding of the sequence of moves, as I imagine them to be:
**We see a block of land/property/whatever we like the look of;
**We find out its current market value by reviewing recent sales of similar properties in the area;
**Somehow we find out what sort of title the land is under - freehold, community, strata etc;
**we run a what-if scenario through our spreadsheet. Eg, what would it be worth if it had 4 townhouses on it, or it was subdivided, or it was strata-titled?
**Now we really like it and we want to contact the owner, who may or may not be wanting to sell.
**We draw up our option agreement, and practise how we're going to get the owner to understand it, if we ever get that far. Maybe something like, " I want to buy your land but I can't/prefer not to pay you for two years. Meanwhile here's $1000 to keep you from selling it to someone else," but sugar-coated.
**We need the owner's name. We can get this by paying a fee to some Government Department, but if we are investigating multiple properties, this could get expensive. We are not wanting to use any of our own money, especially when we don't know if the land is for sale. A letter in the mailbox could be an option, but what if it's a vacant block with no mailbox? Is there a way to find the names of land-owners for free?
**Somehow our letter reaches the owner. Assuming his reaction is more favorable than "O God no! Someone else wants to buy my land. That's the 3rd one this week and it's only Tuesday, " we could be in with a chance. Many people have indicated that 95% of approaches fail because sellers/owners don't want to know about options. That still leaves 5%, which is a lot of properties.
**We get lucky, and seller agrees to our offer. We implement whatever plans we had for the property then sell or hold it to realise or accrue our profit.

***Rinse and repeat.
 
it seems kinda simple, not sure if Mark Rolton indicates the amount of time/effort needed each week, generally speaking, to find and complete your first deal?
 
Hi Andrew, welcome to the forum. :)

With regards to names of owners of properties - Councils charge something along the lines of $4.50 for this info. That will give you their name, mailing address and contact details if I remember correctly. Unless you're spamming (100's) of letters, it's a drop in the ocean compared to the profit potential of scoring a deal.

I believe people are becoming quite switched on with development now. What used to be 'specialist' knowledge, now is becoming quite common in knowing whether a block is subdividable, developable etc. As such the chances of securing a deal for substantially below market value may be difficult (though not impossible). There is much more potential of course when you move beyond the small fish end of the market, but that is the case with most things in life.
 
how about just a standard contract to purchase with a purchasers satisfactory due diligence clause for two years?

or in WA, buy in a unit trust (for those deals under $2.5m) and then just on sell the units with minimal stamps (about the same as an option) so no back2back settlement or double stamps because the unit trust entity still purchases the land.

there's a stack more ideas out there other than scaring the crapola out of a potential vendor with a fat wad of option contract with no certainty of purchase?

I mean, face it, would YOU give someone control of YOUR land for a few years for a piddly $1000? odds are if you won't, then neither will anyone else - especially if it's a complete stranger...the Today Tonight scam radar goes off.

food for thought.
 
I have used options, I have a property under option now. It tends to suit when buying things like development sites where the current owners realise that the land is worth more to a developer who can spend 12 months securing all approvals etc then it is to do a vanilla sale now.

Options have been around for ever.
 
I have used options, I have a property under option now. It tends to suit when buying things like development sites where the current owners realise that the land is worth more to a developer who can spend 12 months securing all approvals etc then it is to do a vanilla sale now.

Options have been around for ever.

Yep, same story here.

I'd guess about a quarter of the development sites I deal with for clients are under option.
 
Mark Rolton's Methods

On Tuesday, May 7, 2013 I dropped in on Mark Rolton's one-day presentation in Adelaide.
It's easy to see why he is so successful - he's highly intelligent articulate, learns quickly from his experience, very determined. + a few other traits.
Within minutes of sitting down I gleaned a vital tip that was worth infinitely more than the cost of admission (not hard to do since it was free!) Seriously though, he said when he puts his properties on the market, if he is using an agent, he always lists the property with 2 at once, under a "dual exclusivity" arrangement. The agent who closes the deal gets 70% of the commission, the other gets 30%. This way the property is exposed to 2 lists of buyers simultaneously. It's a very smart arrangement, and one that I would never have thought of.
Other points he covered worthy of mention were:
**An option is always better than a contract to buy with several "subject to" conditions, because if the deal ends up in court the judgement is more likely to go in favor of the seller;
**We can create equity in a deal by getting a DA. A property with a DA in place is worth more than one without, and the difference between the two becomes our equity that we can use as a deposit when applying for a loan to purchase and/or build;
**Always get presales for at least 70% of the project before beginning construction;
**Price the finished product below current market value in order to shift the stock quickly.

He also mentioned something about the bank paying for the costs of subdivision that I am now vague on, because my notes were scratchy. I think it's connected to the soft equity created by getting the DA in place. I could use a little help on this.
 
On Tuesday, May 7, 2013 I dropped in on Mark Rolton's one-day presentation in Adelaide.
It's easy to see why he is so successful - he's highly intelligent articulate, learns quickly from his experience, very determined. + a few other traits.
Within minutes of sitting down I gleaned a vital tip that was worth infinitely more than the cost of admission (not hard to do since it was free!) Seriously though, he said when he puts his properties on the market, if he is using an agent, he always lists the property with 2 at once, under a "dual exclusivity" arrangement. The agent who closes the deal gets 70% of the commission, the other gets 30%. This way the property is exposed to 2 lists of buyers simultaneously. It's a very smart arrangement, and one that I would never have thought of.
Other points he covered worthy of mention were:
**An option is always better than a contract to buy with several "subject to" conditions, because if the deal ends up in court the judgement is more likely to go in favor of the seller;
**We can create equity in a deal by getting a DA. A property with a DA in place is worth more than one without, and the difference between the two becomes our equity that we can use as a deposit when applying for a loan to purchase and/or build;
**Always get presales for at least 70% of the project before beginning construction;
**Price the finished product below current market value in order to shift the stock quickly.

He also mentioned something about the bank paying for the costs of subdivision that I am now vague on, because my notes were scratchy. I think it's connected to the soft equity created by getting the DA in place. I could use a little help on this.

I'm going to give you the benefit of the doubt and say thanks for sharing the tips.

I have used a similar listing technique with 2 "exclusive" agents- usually agencies who hate each other's guts only the loser/non seller got nil.

Options are a good little scam but don't get into them if you are not the first on the scene. The finders make the money when they onsell. If you buy from someone down the chain it will only lead to tears......
 
Usually a scam for the seller. Generally speaking, the options I have seen as a solicitor are usually ADHD style type A personality types who don't really add anything to the equation except an extra layer of cost to the ultimate developer. Although they will talk "win/win" you will find that most are signed by sellers with very little commercial nouse absent of proper independent legal advice. Usually mum and dads on large valuable lots talked around by a smooth agent on behalf of the option entrepreneur.

I don't have a problem where both parties get into commercial options with their own legal advice.

What did Rolton say about the vendors using lawyers?. I expect that his position would have been to have the forms fully prepared at the time of initial approach so that you can pressure/convince the sellers and lock them in immediately.

I don't have a problem with options as such- but they are an effective way of taking advantage of ignorant people and I suppose that's why I refer to them as a scam.
 
cu@thetop,
I wasn't at Mark Rolton's seminar long enough to find out his attitude to lawyers for the seller. He may have touched on it briefly, but I get the impression he expects the seller to refer to a lawyer before signing. At the leaset I haven't seen anything in his material that tells his students to discourage the seller from seeking legal advice. I presume he carries a wad of blank option agreements in the glovebox of his car, which would serve the dual purpose of being prepared for every opportunity, no matter how much or how little time the seller needs to consider his offers.
From what you say about your experience, it sounds like the sellers have pretty much made up their minds to sell by the time they come to you anyway.
 
prospective seller seeking legal advice regarding options

Hi guys
A few week ago in Brisbane I attended one of those property options one day workshops run by MR and during his brief he did mention to advise the prospective seller to seek legal advice and to offer as the prospective option holder to go along with seller and run through option again in front of their solicitor.

In saying that - when completing options I would ask the prospective buyer to call their solicitor right now to set up a meeting back at their dwelling to run through option again in their presence - thereby listening, explaining and advising their client to make an informed decision regarding the call option.

I probably will not do the $8k-$9k course in Nov for options with MR as I have just about got everything I need to go ahead now without utilising MR's company and offer 80% (1st time round) of profit and then 65% thereafter to have MR's company hold my hand through the deal.

It perhaps is a great idea for those with no property experience and if you have the spare cash then go for it. Otherwise just be cautious where you spend your property education money to gain the right knowledge.

All the best.
BFB
 
cu@thetop,
I wasn't at Mark Rolton's seminar long enough to find out his attitude to lawyers for the seller. He may have touched on it briefly, but I get the impression he expects the seller to refer to a lawyer before signing. At the leaset I haven't seen anything in his material that tells his students to discourage the seller from seeking legal advice. I presume he carries a wad of blank option agreements in the glovebox of his car, which would serve the dual purpose of being prepared for every opportunity, no matter how much or how little time the seller needs to consider his offers.
From what you say about your experience, it sounds like the sellers have pretty much made up their minds to sell by the time they come to you anyway.

again....."hi I'd like to buy your property. please get your lawyer to check this contract".

I mean, really?

o/a with std, albeit lengthened, conditions when bought inside a unit trust will do just the same....without the scare factor.
 
everyone loves a bot.

400x240-c.jpeg
 
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