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Securing Properties
with Little or No Deposit |
Property Investment Strategy: Securing Properties with Little or No
Deposit
By John Moore
Property Investing often requires creative strategies to make it
successful. Professional property investors often use the option
contract as a tool to develop some useful investment strategies. Here
are some of the ways the option contract can be used to secure property
for profit with little or no outlay.
Option
contracts have long been used by Developers to secure potential
development opportunities. They allow the developer to exclusively hold
the property while they have the local authority approve the development
application.
An options contract can give the developer the right but not the
obligation to purchase a property. They pay an option fee to the vendor
in exchange for this right.
When the option contract expires the developer either, buys the property
and proceeds with the development, or, passes the property back to the
vendor. Yes, it costs the developer a small fee to secure the
opportunity (often 1% or more of the total asking price), but it is a
small amount if the development cannot proceed or is not profitable.
This way the developer limits their risk.
Property investors can secure a property in the similar way that
developers do, like the example above, using a variation of the option
contract. This type of option contract allows the investor to secure a
property with a negotiated deposit and assign it to another purchaser if
required without having to purchase the property first.
A property is secured by an option contract with a term of 2-6 months,
sometimes more. The investor can then add value to the property before
reselling it for an increased price with little or no closing costs.
Here are a few ways they are used to secure property and create profit;
1. An older property is secured with an option contract. The agreement
also provides for access by the investor to renovate. Once the
renovation is completed the property is marketed at a higher price,
before the option contract expires.
The investor then assigns the contract to the new purchaser and the sale
then becomes a contract between the original vendor and the new
purchaser.
2. An option contract is used to secure an off-the-plan property, with a
12?18 month completion date.
In this situation the vendor agrees to allow the investor the option to
buy or on-sell the property. The investor may purchase a number of
apartments at a reduced price, when it is nearing completion, the
property is sold at the original or a higher price. Providing the market
has moved up during the time to completion a reasonable profit is made.
Additionally, the fixtures and fittings can be upgraded to provide even
greater value.
3. An option contract can be used as a method of providing 100% finance.
The property is secured on a long term option contract, 12 months or
more for a set price.
Rising values in a fast growing real estate market ensure that by the
time the option contract expires the value of the property has gone up
sufficiently to ensure that there is enough equity in the property to
cover the deposit. An option contract can provide some attractive
investment strategies for property investors wishing to maximize their
returns. In all cases the option contract provides security for the
vendor and opportunity for the property investor.
See an Option Contract sample option contract (an alternative to the
lease/purchase arrangement used in the USA) on the Property Investors
Association of Australia web site.
This article may be reproduced in its entirety provided the resource box
below is included as part of the article.
John Moore is a Prosperity Coach specializing in Property and Business
coaching. He has helped many people create wealth in their lives and is
President of the Property Investors Association of Australia Inc.
http://www.piaa.asn.au/ an organisation dedicated to providing news,
information and resources to Property Investors.
Article Source: http://EzineArticles.com/
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