Example:
Inital Market Value: 1mil
Market value @ time of exercise: 800K
Lien amount: 200K
Actual loss for homeowner is 400K if you count lien and equity loss.
The idea is to play on greed and ignorance.
There are some people that will only see the potential option money comming to them and will discount the actual risk of depreciation.
The risk is much greater for the homeowner than the investor who does their homework and plays the odds.
The one million number is an exageration. The ideal would be to have smaller options spread out in different markets to hedge the risk that one, or a couple, markets do not depreciate.
I day trade currencies leveraged @ 400:1. There are tens of thousands of other investors also day trading the same way. While we use a mixture of technical and fundamental analysis to judge when to enter and exit trades, it still boils down to placing bets based on odds.
Like FOREX this is simply a “betting scheme” that is a zero-sum game in the end. The markets (real estate and other) are flush with people willing to make such bets.
Is it possible to short-sell individual properties like an investor would short sell stocks of google, etc.?
EXAMPLE:
I’ve been thinking about a scenario where an investor would approach a property owner and essentially bet that the property is going to depreciate in say, the next year. Win lose or draw the investor pays for the option lets say 3% of the properties current market value.
If the property appreciates during the contract period the investor can:
Exercise their option and buy at the current market value.
Chose not to exercise their option.
If the property fails to appreciate or depreciate during the contract period the investor can:
Exercise their option and buy at the current market value.
Chose not to exercise their option.
If the property depreciates during the contract period the investor can:
Exercise their option and buy at the current market value.
Exercise their option and place and place a lien on the subject property for the difference between the starting value and the current value.
Chose not to exercise their option.
I’m almost positive that this is legal, but I have no idea how to make the process legally binding.
Re: Short-selling real estate… - Posted by Brian (UT)
Posted by Brian (UT) on February 22, 2006 at 09:36:04:
Patrick
What are you trying to accomplish?
I have taken options in the past with a clause that the option price will be the lesser of todays price of $__, or a future price as determined by (whatever you want to use,appraisals, etc.).
This clause seems to do what you want to do except creating a lien on equity that doesn’t exist per your depreciation choice.