Now Lets Get Serious!
It's time to take the gloves off. Want to take a gander behind the Option curtain? As a lender, do you want to see how to capture part of a property's appreciation AFTER the borrower has paid off
his or her loan?
Hang on tight! This is a transaction technique that perhaps 0.001% of lenders even know exists!
A few months ago, Kim and I made a loan to a nice young man who needed $129,000 to buy a small mobile home park in Rome, Georgia.
We agreed to loan him $128,000 of the $129,000 he needed. He agreed to the following loan terms: 13% interest, 4 points rolled into the note, 10 years, with monthly payments (principal and interest) of $1,986.31. The borrower's note would be secured to the mobile home park via a security deed (aka mortgage).
Most lenders will agree that these are favorable terms. Yep, a good, solid, profitable, high yielding, safe deal for the lender.
Sadly, this is where 99.999% of lenders stop. If they only knew what they are giving up simply because they never learned how to use Options.
What if you could capture part of this mobile home park's appreciation even after the borrower paid off his/her note?
"What?" you ask. "That's a thing?! How on earth can I capture part of a property's value AFTER the note has been paid off?"
Before continuing, this is a good time to remind you to join us at this weekend's Power of Options Seminar (Saturday and Sunday, June 24th & 25th, 2023). This is a Zoom-only event. Everyone attending will get a recording of this one-of-a-kind Options Seminar.
Now, back to the deal.........
The Park buyer (aka Optionor) needed $129,000, not $128,000. How
did he get the extra $1,000 he needed? At closing, he sold us an Option to buy 10% of his park anytime in the next 50 years. You read this right: 50 years!
The strike price (the price we agreed to
pay the Optionor to get 10% ownership of the park) is $1,000. The Option Consideration was $1,000. All the Consideration applies to the $1,000 strike price if/when we exercise our Option. The Option was secured to the property using a security deed.
Said differently to help folks better understand this accord, Kim and I paid the new park owner $1,000. This was NOT a loan. It was a purchase for the right to buy 10% interest in this mobile home park for $1,000 anytime within the next 50 years. In return, the park owner got the additional $1,000 he needed to buy the property ($128,000 Note + $1,000 Consideration = $129,000 the buyer needed to purchase the
park).
IMPORTANT: Even after the borrower pays off the promissory note we now hold, our Option will survive. Over the next 50 years, as the park increases in value, Kim and I will capture
10% of the park's equity. And what's the cost to us to exercise our Option to acquire 10% ownership of this park? $1,000......which we've already paid!
Some of you are reading this and
scratching your head wondering what the heck is he talking about. Others are ready to cry because you just realized the gaffe you've been making all these years as a lender that has cost you hundreds of thousands of dollars in lost appreciation!
At our Power of Options Seminar, a copy of this deal's recorded paperwork (Note and Security Deed + Option and Security Deed), as well as a deep dive into how this deal was structured, how the Option was secured to the property, and an explanation about why the Optionor/Borrower agreed to this deal, is included in the latest version of our comprehensive Power of Options Manual.
Now, let's talk about you. If you want to stop scratching your head or crying over spilled milk (missed opportunities), join us at June's Power of Options Seminar and learn the language of Options. To learn more about our Power of
Options Seminar and to register, just click the link below right now before you get busy doing other things.
Kim and I are forever grateful to Jack Miller for teaching us how to creatively structure with Pure Options. His lessons have had an incredible impact on our financial lives!
Options are one of the least understood and least used deal structuring tools in real estate. We look forward to seeing you THIS WEEKEND on the Zoom call at the Power of Options Seminar on June 24th & 25th, 2023. Can't make that date? Don't worry, the class will be recorded, so you
can listen/watch at your convenience!
Think of all the deals you'll be able to do IF the Option tool is in your creative deal structuring toolbox!
Better bust a move if you're coming!
