K
kennyhubbard
New Member
Hi guys,
I have an idea that I a working on and would like to get some input.
I am planning to set up an infrastrucure through which players in the real estate market can trade options on off plan properties.
The way that it works is as follows.....
You buy a property off plan, just like you would anyway. You typically pay about 20%-30% of the price over 18 months with the balance due on completion.
With your contract in hand you go out and sell an option on the property to somebody.
The option buyer will pay you a fee of, say 5% for the right to purchase the property in a year at a 10% premium. If he chooses not to exercise his option, you as the owner, have lost nothing. You still have your property and you have the 5% fee which is more than you would have had if you had not sold the option.
If the option holder chooses to exercise the option and buy the property, then you would have made, typically, a 50% return on your cash in a year.
The catch is........IF the market has grown by 20% or 30% then you could have had more profit, however, this option strategy is a risk mitigation tool and the target is to exit the market in the short term with a good return. How often have you heard somebody saying that their property is worth so much......but he can't get it sold. There is a huge difference between having a property valued at a price and having a buyer at that price. Basically with the option strategy, you are exchanging longer term uncertain profits for a short term pre determined exit strategy at a lower premium.
The figures that I have used are illustrative......the market would determine the actual numbers ultimately.
Anyway, I would welcome any thoughts on the idea.
Cheers.
Kenny
I have an idea that I a working on and would like to get some input.
I am planning to set up an infrastrucure through which players in the real estate market can trade options on off plan properties.
The way that it works is as follows.....
You buy a property off plan, just like you would anyway. You typically pay about 20%-30% of the price over 18 months with the balance due on completion.
With your contract in hand you go out and sell an option on the property to somebody.
The option buyer will pay you a fee of, say 5% for the right to purchase the property in a year at a 10% premium. If he chooses not to exercise his option, you as the owner, have lost nothing. You still have your property and you have the 5% fee which is more than you would have had if you had not sold the option.
If the option holder chooses to exercise the option and buy the property, then you would have made, typically, a 50% return on your cash in a year.
The catch is........IF the market has grown by 20% or 30% then you could have had more profit, however, this option strategy is a risk mitigation tool and the target is to exit the market in the short term with a good return. How often have you heard somebody saying that their property is worth so much......but he can't get it sold. There is a huge difference between having a property valued at a price and having a buyer at that price. Basically with the option strategy, you are exchanging longer term uncertain profits for a short term pre determined exit strategy at a lower premium.
The figures that I have used are illustrative......the market would determine the actual numbers ultimately.
Anyway, I would welcome any thoughts on the idea.
Cheers.
Kenny
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