How would I structure this? - Posted by John

Posted by John Corey on May 19, 2006 at 04:58:53:


What you are asking seems a bit confused.

Ask yourself why your nephew is selling a partial interest. What is the point?

You are speculating that the lot will be worth more in the future. This is speculation. It could very well turn out to be true but there is no guarantee.

Why buy a partial and not the full interest? Who will pay the property taxes and otherwise make sure the lot does not attract any liens if you own part of the lot (ignoring the option ideas for a second)? Some cities have rules about weed control and will fine people who do not keep up with the situation on a vacant lot. Other times it does not matter.

An option can be a way to control or obtain an interest in property. You could pay $100 for the right to buy a partial interest. Do you want to have an option that lets you buy the full lot or just a partial interest? Are you expecting that you would hold until your nephew cashes out of the lot or that you would actually exercise the option to take full control?

If your nephew is trying to raise cash they will likely expect a significant amount of money for the option. That will change the value of using an option. There can be a tax difference if you have an option vs. a direct partial interest in the property.

More thought has to go into this. It might be a great deal. You have not provided a complete picture. Maybe you have answers but did not present them or maybe you have not thought it through.

A general comment. A long dated option is generally a good thing as it puts time on your side. If you have very little into the deal (option consideration) the deal has great leverage.

John Corey

How would I structure this? - Posted by John

Posted by John on May 17, 2006 at 21:04:03:

Been invited to ‘purchase’ PART of my nephews upcoming real estate deal. It is a 1/4 lot, in a great location and… he’s willing th sell it to me… for LESS than its appraised value.
How would you ‘structure’ this buy? Am thinking of offering him an Option. (3-5 year) Within this time frame, it no doubt, will increase in value. Thoughts?
Thanks much.