The Craziest Option Deals – The Playboy

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Topics: Options

An Option can take many forms.  The way I use them most is to get a contingent contract to purchase a property with a clause that states that something else has to happen or I will not buy the house.  It could be that I have to find another buyer before I close.  Or I need to get the house rented.   For my HighestBidderSale.com deals, the Option says that I have permission to market the property to sell to the highest bidder.  If I find a buyer, I will close usually with a simultaneous close or sometimes I assign the contract.  If I do not find a buyer, they I am not obligated to buy.

This type of Option can be used for cheap old wholesale deals or multi-million dollar mansions or 18,000 acre ranches.  Most of the time my option deals work out, but sometimes they don’t.  Either way, your risk is limited to the option consideration, your marketing expenses, and the time you put in to the deal.  

That is why Options are such a powerful tool and you should learn as much as you can about using Options.  

Options will open up many new opportunities for you which would not be available if you were buying the house.  Many Option deals that I have done were on properties I would not want to buy or own yet I was able to make a substantial profit by using an Option.

A desperate seller called me about a property in Colorado Springs.  It is worth $2,500,000 with a mortgage balance of $1,400,000.  The owner’s business went under when the economy took a nose dive in 2008.  He got behind on his payments and tried to sell but there were no buyers so he did a Lease Option to a very famous motivational speaker who you would know if I told you his name.  The celebrity paid $20,000 for the Option which was enough to catch up the back payments and stop the foreclosure.  The monthly lease payments on the 24-month lease were just enough to cover the mortgage payments.

The problem was the celebrity motivational speaker only made 6 payments then moved out of the house leaving it trashed… literally.  I'm guessing he moved out because of constant harassment from the neighbors and the police. 

I was shocked to see the condition of this exquisite property.  The neighbors told me there were wild, loud parties at the house every night and the cops were called often.  

The teak built in office furniture was jumped on so much that it broke.  It looked like someone took a sledge hammer to it.  There were cigarette burns in the beautiful thick marble in the kitchen.  It looked like there were Kool-Aid stains in the white carpet which was throughout the house.   There was clothes, trash and booze bottles everywhere.  All the furniture was destroyed.  It is hard to believe that anyone could live like this.

The views from this property were some of the best I have ever seen (until I moved to Panama).  One side of the house had 30 foot high windows.  It felt like you were on top of the world and could see forever.  The pictures the owner showed me of what the house looked like the month before the celebrity moved in was incredible.  The house was perfect and in great condition.

It was so sad to see such a spectacular house destroyed in only 6 months.  I have a whole new opinion about the motivational speaker now.  

The owner had no money for repairs (which would have been extensive), so he needed to sell “as is”.

Even with all the repairs, I thought I’d be able to sell this property for at least $200,000 over the mortgage balance.  With that kind of profit margin, I was willing to give it a try.

I suggested a Highest Bidder Sale as our exit strategy.  We’d let the market determine the price.  The seller agreed that anything we could sell it for over the mortgage balance (which was in default again), would be sufficient.  He just needed to get rid of the house.  We agreed to split any profit 50/50 after expenses.  

To try to make the house look a little better, the owner did spend a couple hundred dollars to get a crew in to get the broken trash and furniture out and clean it up as much as possible.  

I also suggested that we work with a company who would bring in furniture and artwork to try to make the house look more presentable.  This is an auction company who sells all the furniture and art to make their profit.  They do not conduct the Highest Bidder Sale.

I had my Highest Bidder Sale signs shipped to Colorado Springs and recruited people from craigslist to help get them out.  A web site was built, press releases were sent out, and ads were run in multiple locations to try to attract as many people as possible.  With a Highest Bidder Sale, the more people who show up, the higher the price is.  

Things don’t always work out as planned.  

The truck full of furniture and artwork could not get up the steep hill to furnish the house.  So they quickly got a conference room at a hotel to sell their furniture and things via an auction.

There was a good turnout for the 2-day Open House and plenty of bids.  The starting bid was the mortgage balance.  None of the bids were for much more than the mortgage balance.  We submitted a contract for the highest bid to the mortgage company as a Short Sale but it was rejected. 

I continued to market the property to try to find a buyer.  But eventually went to foreclosure and the bank got it back.  

Like I said, most Option deals work out, some do not.  

But the knowledge you gain from each experience is priceless!

The more you can learn about Options before you dive in, the better chance that the majority will work out.

You can get that knowledge at Peter Fortunato’s CREATIVE OPTIONS STRATEGIES workshop March 8 & 9th in Costa Mesa California.   Peter’s is the most creative real estate entrepreneur I know. LEARN MORE HERE and listen to Peter’s 1 hour call about Options)

Next time… the $17,000,000 Maui deal

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2 Comments on “The Craziest Option Deals – The Playboy”

  1. I’m glad you put a deal that didn’t work out in here. I think the new people need to see that not everything works like it should and that the investor still comes out with something even if there is not a profit involved… Knowledge, Which worth just as much.

    1. Hey Chris. You’re right. It’s important to talk about the “big one that got away” too!

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