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How to Make $100,000 a Year on
FREE Real Estate Options
by Ray Como
You should own all your real estate options in a closely-held corporation in TAX FREE Nevada. I'll explain how and why, but first, what is an option?
An option is a unilateral agreement between two parties where the optionor (option-OR...Sell-OR, remember that) has agreed to sell under some predetermined price and terms. On the other hand, the optionee (the buyer) cannot be forced to buy...thus "a unilateral agreement."
Have you ever used one? Were you ever the optionor or the optionee? Chances are that along the way you have experienced an option in some form. You just may not have realized it.
When was the last time you bought a car? Did you leave a deposit with the seller of the car? Did the seller agree to sell to you under the terms negotiated? In other words, the seller has agreed [without a contingency] to sell. You leave a $500 deposit with the promise of returning with the balance of the money owed the seller, and to complete the transaction.
Assuming the seller is good for her word, when you return with the money, you will own the car. If you did not return with the money and did not complete the transaction...you simply did not exercise your option. And chances are you will lose your $500.
In the above transaction the seller of the car was the optionor and you were the optionee. You gave $500 option consideration for the right to buy that car at the price and under the terms negotiated. The $500 option consideration was to apply directly to the purchase price if the option is exercised.
That was an example of you buying an option. You paid $500 for that right...or that "option." But an option is not a right in the object you are buying, it is an agreement to create that right.
Have you ever sold an option? Have you ever taken a deposit from prospective tenant? Have you ever accepted earnest money from a prospective buyer of a property you were selling? Have you ever used my buy-sell agreement? My buy-sell agreement is simply an option by virtue of its one all-encompassing exculpatory clause. Then there are nineteen separate profit centers...over half of which are mini-options.
In these examples, you would be the seller or the optionor. Chances are, you have been the optionor plenty of times. You just may not have realized it. I first wanted to set the stage for this discussion on options because options are the most powerful tool available to you in the real estate marketplace. With options you can control huge assets and equities with zero risk. Remember an option is a unilateral agreement.
The optionor must sell, but the optionee cannot be forced to buy. Are you concerned about tax laws? The option is a invincible ally in this department too. The IRS views an option transaction as an incomplete transaction because it is impossible to ascertain gains or losses until the option is exercise or allowed to expire. Take a look at your tax forms. You will not see any reference to option money (option consideration) paid or received. Option money paid is not deductible by the payor, nor is it claimed as income by the payee. Options are addressed in section 1234 of the IRS code.
An option is a contract. To be enforceable it must be draw in contract form. An option to buy real estate should be drawn in recordable form. Contract form includes: 1. An offer and acceptance. 2. A meeting of Minds. 3. Between competent parties. 4. For a lawful purpose. 5. Consideration passed. 6. Signed by all parties. 7. Dated.
That is basic "English-Common-Law-Type Contract Form." For a document involving real estate there are two additional ingredients: 1. Identify the property by address; Legal Description; Deed Book Volume and Page # and Lot and Block #. 2. It must be notarized. (I am not aware of any area were an un-notarized document can be recorded.)
For the serious and conscientious deal-maker of the nineties to deal safely in options, you must know how to properly "package" an option. "Packaging" or "underwriting" an option-to-buy is very similar to the process of buying. Of course you must have the title searched. And you do open escrow because all documents necessary to transfer title must be executed and placed into escrow. The optionor executes all these documents the day you close the option part of the transaction. In the future, when/if you exercise your option-to-buy, taking title is as simple as a visit to the escrow holder.
The brilliant optionee would own all options inside a closely held corporation formed and domiciled in Nevada. Here are three exhilarating benefits:
SUPREME PRIVACY of these valuable assets.
STATE TAX FREE in event they are sold and a profit earned because Nevada has no state corporate income tax.
FEDERAL TAX DEFERRED because option money is not taxable until the option is exercised or allowed to expire.
For more great info, buy Ray Como's
"Transaction Engineering Package".