Over the past few weeks, I’ve shared three Pure Option Deals with you.
With the first deal, we acquired a Pure Option from a homeowner who didn’t want to sell his home. Because we agreed to pay the owner’s property taxes, which allowed the owner to keep his home, he granted us the right to buy his house at some point in the future at a pre-agreed to price and terms.
In the second deal, you saw how I lost $217,300 because I didn’t use a Pure Option when creatively constructing the deal.
The third deal showed how we didn’t repeat the mistake we made with deal #2. Thus far, because we did include a Pure Option, we’ve made $155,000!
Today, let’s look add an option deal with which most real estate investors are familiar – a Lease-Option Deal…and we’ll add in an Owner-Financed kicker.
In February 2017, we bought a home on Reynold’s Bridge Rd in Kingston, Georgia. Our purchase price was $43,500. With the cost of rehab, we had about $55,000 invested in this property.
After rehab, the fair market value for this property was about $115,000. At first, we considered selling (flipping) the property and pocketing the cash. As we all know, flipping incurs huge tax consequences.
To avoid this tax hit, Kim and I switched to a different deal structure: a Lease with a Purchase Option. In addition, we would agree to owner finance the property to the tenant/buyer if, for 12 months, they proved they would take care of the property, make their rent payments on time, be easy to work with, and be a good neighbor.
Because Reynold’s Bridge Road would start life as a rental, and if it remained a rental for at least 12 months, the property, in the IRS’s eyes, would be an investment property rather than a dealer property. This means this property would qualify for long-term capital gains tax treatment, 1031 tax treatment, and installment sale tax treatment. In other words, we would keep more of what we earned instead of having the government steal a big chunk of that away.
In May 2017, we rented the property to a very nice couple. Monthly rent was $1,120 per month. At the same time, we gave them an Option to buy the property for $140,000 13 months later. We also agreed, if the tenants were in good standing and did what they promised, to Owner Finance the property to them. In other words, we’d be the bank.
The owner financing terms were $10,000 down with monthly payments of $925 (PI only), at 7.679% for 30 years.
In 2018, this nice couple bought the property from us, and we owner financed the property to them. They still live in and love this home today. This is a great example of a true Win-Win Deal!
Do you see how valuable our Option work was to this deal? Without it, there’s a good chance this transaction would have fallen apart.
Time is running short. Our Power of Pure Options two-day Zoom-only seminar is fast approaching – January 28 & 29, 2023. Early-bird pricing ends on January 22, 2023.
Think of all the deals you’ll be able to do IF the Option tool is in your creative deal structuring toolbox! We look forward to seeing you on Zoom!