Renegade Economists Show 361
Broadcast on 3CR, 5.30-6pm Wednesdays
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Karl reports back from the Ultimate Positive Cashflow Breakthrough seminar on this property speculation weapon delivering thousands to some for a few hours work. Is it by accident and how does it effect the rest of the community?
Follow the tweets @earthsharing.
With Rental Backed Mortage Securities, Self Managed Super Funds (exempt from Capital Gains Tax if sold in the pension phase & able to borrow), Negative Gearing, Capital Gains Tax exemptions, foreign investment, superannuation investing in housing, the advantages for the investor class continue to grow. Now listeners need to get up to speed on Property Options, a tool that has been around for years (Kerry Packer reportedly made millions out of it). Its popularity continues to grow as the pressure on affordability ramps up. Passive income for some.
Options ”An option is defined as the right to buy a property for a specified price (strike price) during a specified period of time. An owner of a property may sell an option for someone to buy it on or before a future date at a predetermined price. The buyer of the option hopes the value of the property will either go up or is already low. The seller receives a premium called “option consideration”. The buyer may then either exercise the option by buying the property or sell the option to someone else to exercise (or sell). This is often done to obtain control over a property without much cash. Option premiums are typically non-refundable. The option represents an equitable interest in the property and may be recorded at the county recorders office.”
Bird Dogging, links to Creative Real Estate investing.
Other comments on the Mark Rolton presentation:
Talks about US middle class evaporating but there is no connection to how such property investment, the profiteering off the fruits of the earth, leads to the divide!
Now till 2020 – 4m boomers retire + reduced unemployment -> increased immigration, increase retirement age.
Pension just $14k pa, by 2021 it to end. Maybe he talking about the assets test
Dont sell all the properties, keep 10 / 14
One couple kept 46 properties in just 1 year. Development Approval (DA) adds massive value. You cant borrow that kind of money, but you can with soft equity. Soft equity – option owner doesn’t own property but can use the option as a deposit to garner loans!!!!!
Gotta be curbed.
Loves land subdivisions, “its insane how much money is made.”
If it sounds too good to be true – it is. This is a corruption on the very fabric of a democratic society. We the people have lost control, lost even an insight into what the property lobby are able to do to OUR land. $15K for 5 hours work – another example of economic rents being forfeited by the public financing system. We are demeaning our earth rights, in preference for a place on the beggars table.
How Options Can Help Minimise Tax
“As illustrated, an option may be used to manage the timing of when a CGT event happens to a property sale, which may be very useful in a variety of scenarios.”
Under the law, if a vendor enters into an option to sell a property, no tax will generally be crystallised at that point, provided the option is exercised at a later date.”
I did my 1st Option Deal at 72 and made $160K
The investor pays the pensioner a monthly fee in exchange for the option to buy the pensioner’s home in the future but at today’s price.
Generally, a pensioner is “asset rich but cash flow poor”. They own their own home, which may be worth many hundreds of thousands of dollars, but have to live off an aged pension which is only a few hundred dollars per week.
In effect, a Popi allows the pensioner to receive cash from an investor on a regular basis, and in return the capital growth of the property will be passed on to the investor.
A Popi allows an investor to get into the property market without requiring a deposit or taking out a loan. Providing the investor has sufficient cash flow, all they need to do is pay a monthly fee and they are able to benefit from the capital growth of the property. However, my favourite is that there are no tenant hassles; the pensioner still owns the house and is technically not a tenant.
The downside is that the investor isn’t able to control when they can buy the property; that is controlled by the senior and is triggered when the pensioner wants/needs to sell their home. So a Popi isn’t ideal for people who need maximum control over their investment timelines
Popi is a lifestyle solution for retirees! Essentially, a Retiree exchanges the uncertainty of future capital growth on their property, for the certainty and financial security of a monthly income today, without putting their existing household equity at risk.
What you’re aiming to do is use other people’s money (OPM) to organise you deals or to net you a buy and hold investment.
3. Option agreements
Strategy: Get the vendor to agree to an option agreement, where you have the right, but not the obligation to buy the property. Find a way to increase the property value and onsell it for a profit
Requires: A vendor who will agree to an option agreement, usually a distressed seller
When a buyer and seller agree to an option, it means the buyer will pay the seller a specified amount – usually a couple of thousand dollars, depending on the property – to acquire the right to purchase the property at an agreed price until a certain date.
This amount, say $4,000, will usually be credited against the purchase price of the property should the buyer purchase the property. If the buyer does not exercise the option, the seller retains the payment.
During the option period, the buyer has the option and exclusive right (but not the obligation) to buy the seller’s property. Before signing the option, there will usually be a contract of sale already drawn up, which means that if the option is exercised it will be under terms already agreed to.
An investor can use these types of agreements to raise finance if they can find some way to increase the property’s value. This way they can sell the option to purchase to another buyer who is willing to buy the property at its new value and net the profit.
It’s a risky strategy and relies on the investor having two skills: the ability to add value to the property in a cost effective way (such as a cosmetic renovation), as well as the ability to negotiate a fairly low purchase price for the option.
The other issue is that few vendors will be willing to agree to an option unless they have had some trouble selling their properties.