Due to their inherent low/risk-high/reward characteristics, Options are ideal for building assets quickly. During the halcyon years of the 1970s and early 1980s, everyone was trying to make a pyramid of fortune through leveraged real estate. Then came the big slowdown in many parts of the country, and many speculators turned their attention elsewhere. As long as the specter of inflation remains hidden and until John Q Public begins to sense that inflation has returned, a moribund housing market will offer spectacular option gains.
This is what a guy does. Offers full retail value for corner lots in sprawl areas, but your contract is contingent on you obtaining a building permit for a 7/11 convenience store. Then he lets the slow-motion rezoning process do the work for him as inflation rises. You only exercise your Option if you can obtain the zoning change, which, in itself, can triple the value of the property, or if inflation allows you to sell the Option or lot at a decent profit. He usually puts down $500 down.
We all know that zero interest rate financing can build a fortune just as well as anything else. Leases and options can effectively combine sub-zero interest rate financing with leveraged appreciation. Here’s how: When you can Lease with an Option and get a reasonable percentage of your rents applied against the FIXED Option price in the PARTICIPATION. That captures GROWTH and PAYBACK. But suppose you can sublet the property for more than your own rent payments. You will also get a POSITIVE CASH FLOW. And most rental owners have no idea how much profit they’ve transferred to you.
You can also find ways to use Options to raise tax-free cash while you wait for the price to rise. You may SELL part or all of your Option or Lease for cash or paper. You can borrow on the well-collateralized and documented Principal of the Option. You can use Option principal to make yourself more presentable to bankers by displaying Option securities as ASSETS that have no offsetting LIABILITIES to increase your personal or corporate NET WORTH to obtain a loan. And you can contribute Options and Leases to a UNION in exchange for a controlling interest that will allow you to earn wages and benefits.
