What You Missed April 2012 General Meeting
by Robert Davis
Make Money with Options and IRAs
Presented by: Jack Shea
April 3, 2012
Jack Shea has been doing options on real estate for decades. He talked about all the various advantages of using options to gain control of a property.
You have a fixed downside and an unlimited upside. The option is the cheapest way to gain control of a property. Often you need only a hundred dollars more or less to get a short time option. In addition to gaining control for a low investment, your liability is limited. For example if values go way up you can keep or exercise your option. If values go down or you find a major problem with the property (like a leaky roof that the real owner won’t fix) then you can just opt out of the option. Your biggest loss will be losing your option money. If you bought a house instead of optioning it and the roof leaks, you get to fix it and pay for it.
The option length you want will vary depending on what you want to do. If you are going to flip the property in a short time you may want a short-term option with the ability to extend it. That may be cheaper than getting an option for a year or more. However, if you want to rent the property, your option should be for the longest time you can get, preferably 3-5 years or more.
Your tenant should get a contract for option instead of a lease and option, and for a shorter time period than your option to buy. Jack uses the contract for option instead of a standard lease with option to buy because he says the contract for option does not give the tenant an equitable interest in the property. Your tenant gets a contract and a lease and, if all the terms are fulfilled, after a few years they then get a real option to buy.
Jack said the average tenant who has a contract for option stays longer than the average straight tenant. Most tenants with a contract for option tend to treat your property better than a straight renter. They sometimes make valuable improvements to the property with the intent of eventually buying the property.
Using a contract for option can avoid a lot of normal tenant problems. Additionally, options can be used for a lot of other things, too. You can option all kinds of physical things - even a lawn mower. You can option notes and they cannot be attached to if you should get sued.
Lastly, Jack talked about a way to have a checkbook available for your IRA money. If you use a traditional IRA custodian you are limited as to what you can invest in. First you would have to employ a true self-directed IRA custodian company. If you have a killer deal and need your funds immediately, you may have a problem getting immediate response from your custodian. By using a perfectly legal method you can have your IRA money available via a normal checkbook instead of having to get the custodian to send your funds to buy something. But that’s another seminar. Jack Shea teaches people how to do that.
If you missed this meeting you missed some valuable information.
