Sometimes the profit motive brings out the best, and worst, of us. There were a couple of friendly rivals among Exchangors a few years back named Cliff and Art. Art was far and away the most successful financially, but Cliff was the more artful – as in artful dodger – of the two. No matter how hard Art tried to best Cliff in a deal, he never quite pulled it off.
At one exchange meeting, Art was trying to get someone to offer to trade some real estate for a Cessna 310 that he had been trying to sell for some time with no success. Cliff asked Art if he use some Colorado land that he was buying to buy an Option to sell the plane at Art’s asking price.
Art, suspecting some kind of ploy on Cliff’s part, specified that a Deed to the land, subject to the existing loan, would have to be placed into escrow, and further, if he didn’t have the money from the plane in his hands within 60 days, Cliff would lose his land.
Sure enough, at the end of 60 days, Cliff hadn’t sold the plane and Art gleefully claimed the land. Along with all the land documents came a payment book which called for monthly payments of $140 per month to be paid the Colorado Land and Cattle Company.
Some years later, during which Art had been faithfully making his payments to Cliff, they were in a bar having the last of many beers when Art started needling Cliff about how he’d lost his land on the deal to Art. Cliff took it until he couldn’t keep his mouth shut any longer.
It was then that he revealed to Art that he owned the Colorado Land and Cattle Company, and that he had used the Option only as a ruse to get Art to buy the overpriced and over leveraged land from him.
The moral of this story is that you should never take property value on faith alone. Always check value. Many an unsuspecting buyer has been convinced of a properties value by assuming it is at least worth as much as the debt that is owed on it.
The other lesson to be learned here is that you can unload hard to sell property of all sorts as Option consideration to be counted toward the purchase price of more expensive property. When you introduce the probability that you might not be able to close on the Option and thereby lose the property you gave for the Option, the seller often gets greedy and accepts it. This especially true if he thinks you won’t be able to close, and thus will get something for nothing. As Cliff’s ploy proves, getting something for nothing may not really be for nothing.
Bear in mind that if Cliff had some how been able to dispose of Art’s airplane at the Option price for cash, he’d have been able to keep a portion of the cash that represented the purported value of his land. So, when you can’t sell something, consider trying to use it to buy something else.
Do you have any stories about creative deals you’ve heard about, or been involved in?
