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01. This Book
02. Syndicate Boom
03. Get Information
04. Syndicator
05. How much?
06. Depreciation
07. Depreciation Applied
08. Declining Balance
09. Straight Line
10. Paying Taxes
11. Pay Mortgage
12. Income Taxes
13. Paper Loss
14. Tax Shelter
15. Rent?
16. Syndicator Units
17. Wear + Tear
18. Lease-Hold
19. Building
20. Comparison
21. Specialized Properties
22. Growth
23. Leverage
24. Share Growth
25. Why + How
26. Syndicate Agreement
27. Net Lease
28. Long-term Lease
29. No Guarantee
30. Inflation Clauses
31. "Inflation Clause" Works
32. Inflation Clause?
33. Mortgage Due
34. Interest Rates
35. Short Term Mortgage
36. Good Mortgages
37. Refinancing
38. Refinancing Clauses
39. Share of Mortgage
40. Share of Profit
41. Purchase Options
42. How Purchase Options
43. Stunt the Growth
44. "Subordination"
45. Long Term Lease
46. Business Organizations
47. Syndicate Debts?
48. Management
49. Your Consent?
50. Sell Your Unit
51. Investment Trust?
52. Business Syndicate
53. Multiple Properties
54. Dream or Reality?
55. Syndicator's Background
56. Value of Guarantees
57. Look for Yourself
58. Conclusion
Resources
41. Purchase and Repurchase Options — Good or Bad?
In recent years, some syndicates offered to the public contained repurchase or purchase options. The syndicator or seller reserved the right to repurchase the property which he is selling to you and your co-investors. Sometimes the lessee has the option to purchase the property.
What is meant by a purchase or repurchase option? It is the right of one party to buy the property. Note that it is a right—not an obligation. The terms of the option are determined by the option agreement and are set forth in your brochure. For instance, a syndicator may reserve the right to purchase the property from the syndicate at any time between the 5th and 15th year after the syndicate comes into being. Such an option will contain the price which a syndicator must pay if he decides to exercise the option. The option could state that for every year during which the syndicate owned the property, the buyer would have to pay a 4% profit on each participant's investment. Thus, if the syndicator buys the property after 7 years, he will have to pay a price sufficient to pay each investor 28% above the amount invested. (7 x 4%).
As we said before the option is not an obligation to buy on the part of the person who owns that option. It is a one-sided affair. That person has the right to buy your property. He is under no obligation to do so. Naturally, the owner of such an option will only exercise it if it is profitable for him.
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