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Buying on an Option

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ScottyS141

New Member
Hi guys,

I value some advice from you on the subject of "buying on Option", how it works, strategy and costs!

To give you an example, i have been offered a property that is on the open market for sale for sometime. however it needs refurbishment and structural works, which would prove difficult to raise finance on until fixed. the property is 82,000 pounds, with a resale value of 120,000. I am not worried about the refurb and fixings as we have experience in this.

So how could i structure a deal to secure the property on an option? Allowing me to refurbish the property, fix the structural issues and sell on for profit? Would i need to offer the seller over asking price? or a small deposit of like 500 pounds for the option?

How would i secure my funds invested into fixing the property? i.e security so the seller doesn't use me to fix the property and then take it back??

I am keen to hear your thoughts on how you would structure the deal?

Regards
 
L

Longterminvestor

Administrator
Some general observations:-
  • Any deposit to gain an option on the property would need to be substantial otherwise why would the current owner agree? I would guess well into the thousands of pounds.
  • I don’t think it makes commercial sense to begin redeveloping the property until you own it. This is just too complicated and fraught with danger on your behalf.
In my mind, a simple watertight option to buy the property at a fixed-price over a fixed period (perhaps two or three years) makes better sense. In theory you will already be walking into a “paper profit” so I would take up an option to give you enough time to raise funds to buy the property and fund the redevelopment. Keep it simple and straightforward.
 
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ScottyS141

New Member
Some general observations:-
  • Any deposit to gain an option on the property would need to be substantial otherwise why would the current owner agree? I would guess well into the thousands of pounds.
  • I don’t think it makes commercial sense to begin redeveloping the property until you own it. This is just too complicated and fraught with danger on your behalf.
In my mind, a simple watertight option to buy the property at a fixed-price over a fixed period (perhaps two or three years) makes better sense. In theory you will already be walking into a “paper profit” so I would take up an option to give you enough time to raise funds to buy the property and fund the redevelopment. Keep it simple and straightforward.

Hi, thank you for your advice. The issues are the seller is finding it hard to sell due to the structural damages causing issues for a buyer to finance the purchase. And i want to buy the property with Finance. So in my eyes it would make sense to structure a deal where i could complete the works, thus making it financialable and then simply either buy it from the seller at the end or sell it on to a much bigger buyer market (finance or cash buyers)... Meaning i should make even more profit!

I have doe many property deals, however the option to buy is a completely new route for me
 
J

Jem Rose

New Member
Hi, Just a thought here,
Does the property currently have any finance attached to it ? If not you could consider speaking to the owner and drafting a "Declaration of trust" with a note attached to the deed.
I have done this in the past on a development, however i was investing with the owner who was also the builder so slightly different but the principle is the same.
Jem
 
S

ScottyS141

New Member
Hi, Just a thought here,
Does the property currently have any finance attached to it ? If not you could consider speaking to the owner and drafting a "Declaration of trust" with a note attached to the deed.
I have done this in the past on a development, however i was investing with the owner who was also the builder so slightly different but the principle is the same.
Jem
hello, thank you for your comments... So basically it would almost be like a Joint venture? The owner provides the property, we provide the refurbishment and upon the sale each party gets their money?

What would be the difference to this or just buying it on an option? Also in both routes how would I secure the owner from selling the property behind my back? Can some sort of charge be applied to the title?

Thanks for all your advice so far!
 
J

Jem Rose

New Member
There is of course an element of trust involved but providing it has been contractual through your law firm it would be highly unlikely the owner would risk this .
You would need to draw up terms and time scales and motivate the owner by agreeing a slightly higher price than he can achieve now if you believe with good research that there is enough uplift in the value to make total sense to both yourself and the owner.. Yet again just a thought on how you could proceed through a good solicitor.
 
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ScottyS141

New Member
There is of course an element of trust involved but providing it has been contractual through your law firm it would be highly unlikely the owner would risk this .
You would need to draw up terms and time scales and motivate the owner by agreeing a slightly higher price than he can achieve now if you believe with good research that there is enough uplift in the value to make total sense to both yourself and the owner.. Yet again just a thought on how you could proceed through a good solicitor.
Thank you for your advice... Much Appreciated
 
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nmb

Well-Known Member
The JV seems like a good idea but the major downside is that sharing with a partner will significantly reduce your profit.
 
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ScottyS141

New Member
The JV seems like a good idea but the major downside is that sharing with a partner will significantly reduce your profit.
Yes this is what i thought, however it would mean possibly having to give profit away or drastically over inflating the original buy price of the property.

Does anyone have any Draft JV contracts or "Buying on an option" contracts they can kindly share with me?

Thanks
 
L

lookinginvest

Member
Hi @ScottyS141

I think we would all be interested to hear where you are now with the deal? Have you found a structure which works for you?
 
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