So Here's the Plan... - Posted by Thomas Brown

import · February 11, 2001, 12:08pm

Posted by phil fernandez on February 11, 2001 at 18:27:01:

Your profit on the assignment of your option will be taxed as ordinary income as would your profit when taking title to the property and then quickly flipping it.

import · February 11, 2001, 12:08pm

So Here’s the Plan… - Posted by Thomas Brown

Posted by Thomas Brown on February 11, 2001 at 13:08:59:

I’ve been reading these boards for a while now, as well as numerous books. Don’t have any cash. Don’t want to take a second on my own house. DO want to flip properties.

So Here’s the Plan…

I place an ad in the paper (I buy houses, etc)
Screen the calls
Pick a Perfect Deal (the hard part) from a Distressed Buyer
Immediately sign an Option to Buy (as “Thomas Brown or assigns”)
Give the seller some Earnest Money
Run to record the Option to Buy
Run faster to a couple of brokers I’ve made contact with who might invest themselves or for some other buyer
Assign the contract with some legal form or other (don’t have that one yet)to the “new” buyer
Get back my Earnest Money and some built-in profit from the Buyer
Start over

Any thoughts on The Plan?

Thanks,
Tom

import · February 11, 2001, 2:08pm

Re: So Here’s the Plan… - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on February 11, 2001 at 15:08:08:

Delete 5,6,&7; and go to it.

Do not ever give earnest money to a seller, or suspected seller. How do you know that they really own the property? Do they have a bunck of leins and judgements against them? How about a nasty ex-wife who thinks that she is “entitled” to something or other. Never give money to the seller, they have a bad habit of not giving it back. Now it would be O.K. to give a modest deposit to a title company, or attorney who will be handling the deal…

6, Don’t run, walk, or take a cab to record the option. Why would you want to do that? Why would you want to post your bargain wholesale price (your cost) in the public records for all to see? Kind of like getting four aces in a poker game and saying look here what I got…Duh. Why not record a memorandum of option, which says you have an option and the price is a secret…

If you have the option you are then the seller. It is O.K. to sell to a broker if you want to, but it would be good to sell to anyone who is willing to pay your price. Brokers like to build a commission into thier deals, this is good. If you sell the property yourself without a broker, keep the commission; don’t give it away to the buyer and don’t get mixed up on this point either (it is very important).

For #8 take a look at Legalwiz.com

import · February 11, 2001, 3:54pm

Re: So Here’s the Plan… - Posted by Thomas Brown

Posted by Thomas Brown on February 11, 2001 at 16:54:07:

Thanks for the ideas, Ed! As to recording the option, I read it’s a good idea to record something in case the original seller is less than honest and makes another deal behind your back. But if you can just record the fact of the Option without the price, that’s certainly better.

One thing (among several thousand) I’m not clear on yet – if you flip using an Option, you never actually become the Title holder, right? Which is good, right?

That way the whole “dealer” problem doesn’t arise, right?

or Wrong?

Thanks to Ed or anyone else who can further elucidate. I haven’t seen a whole lot on the board about just using an Option as a contract (lots about Lease/Options) rather than a Purchase/Sale contract.
If using an Option to Buy will keep your name off the Title, I’d think that would be better for flipping.

import · February 11, 2001, 7:26pm

Re: So Here’s the Plan… - Posted by David Alexander

Posted by David Alexander on February 11, 2001 at 20:26:01:

I would use a contract instead of an option with a subject to clause or two (final Inspection, finding a buyer, etc.) People will take you more seriously.

As far as the dealer problem goes… go out and make some money and you’ll figure out how to deal with that later when you realize your going to have to deal with it and taxes become an issue. At that point you’ll be ready to learn about entity structuring and the like.
folks use that as way of saying I dont want that problem, etc… and it holds them back. Trust me it’s better to have money than not, and alot easier to solve problems.

Just my opinion.

David Alexander