When asked about my favorite Option deal, one Pure Option transaction stands above all the rest.
This deal goes back to 2010. We were in the heart of the Great Recession. Foreclosures were occurring by the thousands, and banks we’re falling like dominoes. Fear kept most investors on the sideline.
At the foreclosure auction, Kim and I were top bidders for a property at $140,000. This same home had sold in 2006 for $525,000. The home needed a shave-and-a-haircut, $30,000 rehab. Our total all-in cost was $170,000.
After completing a three-week rehab, we put this house on the market at $265,000. The open house was packed with looky-loos along with a couple of buyers. Within an hour or two, we were excited to receive two full-priced offers. Both buyers were at the open house represented by their respective realtors.
As I sat on the kitchen island, I noticed a young couple – in their early 30s – at the open house. Due to their age and the price of our upscale property, they didn’t really belong at the open house. They couldn’t afford to buy such a grand home.
Speaking with them, I learned they lived about 20 minutes away. Her parents lived two doors down from our sale property. They regularly babysat the young couples two children. The twenty-minute, each-way drive had created a need for the two families to live closer to each other.
The young couple qualified for a $175,000 mortgage. They loved our house, but knew at $265,000, there was no way they could afford it.
I asked if her parents were home. After getting confirmation, I said, “I’d like to meet them.” Off we went.
NOTE: Kim did not like the fact that we had TWO full-priced offers on the table, and I was leaving the open house with this nice young couple to go somewhere.
At the parent’s house, we sat at the kitchen table. They told me how important it was for them to live closer to each other. I liked the father very much. We were of similar ages and backgrounds.
I asked, “What if your daughter and son-in-law could buy our house for just $170,000?”
The father leaned forward an asked, “Why would you sell them such a nice house for way-under-market value?”
I answered, “I think your daughter would be a perfect fit for this house. It makes sense.”
He asked, “What’s the catch?”
I replied, “At closing, I want the right to buy the property back from your daughter at any time in the next twenty years for $170,000.”
The dad turned to his daughter and told her this was a bad deal. That I would capture all the property’s appreciation over the next 20 years. My offer didn’t make sound financial sense for the young couple.
Looking at the dad, I said, “On one hand you’re absolutely right.” Then I took out my financial calculator and laid it on the table and said, “If you look on my 10bii, you’ll see there’s no FEELS GOOD key. Have you given any thought to what it will FEEL like to have your two grandkids living two doors away? Every day, when they get off the school bus and come into your home, have you considered how much of an impact you can have on their lives?”
And then I shut up.
After a minute, the dad turned to his daughter and said, “Take the deal, Honey.”
Today, this property is worth about $625,000. Our Pure Option strike price is $170,000. That makes this Pure Option’s value $455,000 ($625,000 – $170,000 = $455,000)
What happens next with this deal? You’ve got to attend The Power of Pure Options seminar on January 28 & 29, 2023, to find out.
We are so looking forward to seeing you on Zoom!
Love you,
Bill
