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Doug Pretorius (ON)

How to pitch a pure option

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I met with a seller over the weekend and pitched an SLO, but he's not ready to go that route just yet. Now, it's a very nice property, reasonably priced, and should sell easily so I'd like to get a piece of the action by going back and offering him an option.

 

Only problem is I'm not sure how to pitch it. I know there has been lots of talk about it, and it would seem to be a straight forward proposition. Unfortunately I've been utterly unsuccessful in previous attempts to get a pure option signed.

 

In particular I'm unsure whether I should approach him as an investor/buyer who will flip the house, or if I should use the approach that I'm a consultant who will find a buyer.

 

I plan on holding a 2nd for the buyer, so my first thought is to go the consultant route and explain that I get paid for getting the buyer a mortgage (without going into any more detail than that).

 

Do you guys think that will work?

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Here is what I say. Since we cannot do any of the other transcations we spoke of and your home does not meet my cash to buy criteria what I can do is buy your house and close with you the same time I close with my buyer.

 

Those are the exact words to use. Don't mention the option until you sign the paperwork. Just say here is the paperwork that I would need signed for me to take it to my buyers. As you can see that since I am an investor I can provide financing that you are not willing to do.

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Here is what I say. Since we cannot do any of the other transactions we spoke of and your home does not meet my cash to buy criteria what I can do is buy your house and close with you the same time I close with my buyer.

 

Those are the exact words to use. Don't mention the option until you sign the paperwork. Just say here is the paperwork that I would need signed for me to take it to my buyers. As you can see that since I am an investor I can provide financing that you are not willing to do.

 

Jonathan:

 

I have not used that in my options. I do like the wording but I tend to fully explain legally this is the only way I can operate finding a buyer being a consultant. When you sell the option the intent is to also sell the home or property.

 

There is no right or wrong just what works.

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If you've already got someone on the hook then obviously you've already talked about price. What I would do is:

1) come to an agreement on the absolute best price they can give you

2) Then I would say, alright, before we can go any further I need to ask you a question, do you have a problem with me making some money off this if I can find you a qualified buyer that can get you your full asking price of XXX dollars?

3) You do? Ok, best of luck finding a buyer

4) No, great!

5) What I would do is market the property and network with some contacts that I have to try to find a buyer that is qualified but maybe needs some help with the DP. Since he may not have much of a DP, I would be willing to take some or all of his payment to me in the form of a promissory note. All you have to do is simply agree that whatever amount the buyer agrees to give me will be credited towards the purchase of the house.

This does not IN ANY WAY affect the amount of money that you will get upon closing. But it does make it easier for the buyer to obtain financing and buy your house. And even though the sale agreement that we have is for more than what you will receive, it doesn't affect your tax liability at all because any gains made on your personal residence are tax free. So what do you think, would you like me to try and find a buyer for you?

6) Great! Let's just sign the paperwork and then I can get started

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Gord, well... the list is pretty long:

 

1. Increase profit

2. Decrease risk

3. Income without tenants

4. Reduce taxes

5. Increase buyer pool

6. Decrease competition

 

That's a few things I can think of off the top of my head that you can do by holding a 2nd.

 

Of course, if the buyer wants to hand me a $25k certified cheque, I'll accept that too :)

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Gord, well... the list is pretty long:

 

1. Increase profit

2. Decrease risk

3. Income without tenants

4. Reduce taxes

5. Increase buyer pool

6. Decrease competition

 

That's a few things I can think of off the top of my head that you can do by holding a 2nd.

 

Of course, if the buyer wants to hand me a $25k certified cheque, I'll accept that too :)

 

Good thinking Doug.

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In particular I'm unsure whether I should approach him as an investor/buyer who will flip the house, or if I should use the approach that I'm a consultant who will find a buyer.

 

I'm my brief career, I've been on both sides of the spectrum.

Personally, I've had better luck when "approaching" sellers more so as

the guy that's on their side, as opposed as an investor looking to

get in as cheaply as possible.

There's still ways to make $$ doing it this way. Albeit, not as much as a "cut-throat" but you'll

pretty much carve your own niche, as all the other lemmings take the investor angle.

....just as Michael suggests on the boards and in his manual.

It makes perfect sense.

Also, it gives me a different persona and attitude and I don't feel the "tension" & conflict when

doing it this way as well.

 

 

I plan on holding a 2nd for the buyer, so my first thought is to go the consultant route and explain that I get paid for getting the buyer a mortgage (without going into any more detail than that).

 

Doug,

 

What are your plans, specifically, with this?

Are you meaning that your buyer can get buy this house $0 down?

The seller gets 80% from the buyer's mortgage/loan, and you hold a 20% 2nd?

I've been wanting to implement this, but have run into snags and issues in the

process.

As soon as I can get 'em ironed out, I'll more than likely add it to my "program".

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Jason, I like the idea of offering to bring a larger pool of buyers, buyers who would not be able to buy the house without my specialized financing.

 

I'll be holding about 10%. For some buyers that will mean $0 down. For others it will simply bring the size of the DP down to a workable level.

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Another thing you can do, assuming it's not going to hurt the seller tax-wise, is find out what the maximum seller contribution is for the loan your buyer is going to get. Let's say it's 6%. Then you split that with the buyer.

 

So for a $200k house you can advertise: "I'll PAY you $6,000 to buy this home!"

 

Get the buyer to pay the other $6k upfront as an assignment fee, and everybody's happy.

 

Here in Canada we enjoy an advantage with this technique because primary residences are tax-exempt from the day you buy them. So the $10k or so we add to the sales price will not impact the seller come tax time, as long as it was their primary residence.

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Well, I used Jonathan's pitch and it didn't go over as well as I'd hoped. The seller still got the impression that I would be buying the house and then selling it, not buying when I find a buyer. I think I managed to salvage it though, we'll see tomorrow, we're supposed to meet to sign.

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How did you make the pitch. Everytime I do it they understand that I will be buying the home the same time I sell it. I really stress the idea of that I have an existing buyers lists.

 

Now if you gave the impression that you are not then I understand why they got confused. It just takes practice.

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You know... I've been thinking, do I really even need a non-binding contract signed? I mean what's the point? It's NON-binding! The seller could back out anyway.

 

As long as I get something signed when I find an interested buyer, I'll have just as much protection and as far as I can tell it would be legal. Am I missing anything? Do you NEED a purchase/option contract before you can market a house, or only before you resell it?

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