Option

An Option usually gives the owner of the Option (often called the Optioner) the right, but not the obligation, to buy a specific property.

Lease Options

An Option, when coupled with a Lease or Rental Agreement, is often referred to a Lease Option.

Lease Purchases

An Option, when coupled with a contract to buy real estate, is often referred to a Lease Purchase.

Buying Options

In almost all cases, you will pay an Option Fee to get an Option on a property.

Wholesaling

When we Wholesale real estate, often we control the property with an Option and then either sell our Option for a fee (often called a Wholesale Fee) or exercise our Option, close on the property and then immediately resell it for more than our Option’s strike price.

Options grant the owner of the owner the right, but not the obligation to do or buy something. They are often used in real estate investing as a means of Wholesaling property. They are often used in conjunction with a Lease when you are controlling properties with Lease Options.

Example Of How An Option Works

Let’s take a look at an example of how an Option might actually work with real estate.

You find a Motivated Seller that needs to sell his property and they are willing to sell the property at a significant discount if it can be sold quickly. You successfully negotiate that you will need 30 days to find a buyer from your extensive network of real estate investors that you know and work with. The seller and you agree to give you an option to purchase the property within 30 days for a price that is significantly below the current fair market price.

With your signed Option Agreement you then start to tell the Real Estate Investors you know about the deal and offer it to them for $5,000 more than you have it under option, which is still a considerable discount, for with the same terms for closing in your option. One of your investor contacts is interested in that property and you enter into an agreement with them to assign your option to them for the $5,000.

The investor and the seller actually close the transaction and the investor pays you $5,000 at closing via the Title Company as an Assignment Fee (which is often referred to as a Wholesale Fee) for assigning your option to them so they could purchase the property.

The seller has sold their property in the time frame needed at the price you and they agreed on. The investor/buyer was able to get a great deal on a property and was happy to pay you the $5,000 fee for you finding and negotiating the deal. And you were happy to make $5,000 by assigning your option and helping both parties put the deal together.

What would have happened here if you were unable to find a buyer for your option within the 30 days? Well, you could go back to the seller and ask for more time and/or a bigger discount. Or, since you had the right, but not the obligation to buy the property with your option, you could walk away with no additional obligations.

Real Estate Investing With Options

Since buying or negotiating low or no essentially cost Options can be a great way to control real estate without the hassles of ownership, using Options to invest in real estate can be a great strategy for keeping your investing risk to extreme minimums while giving you a virtually unlimited upside. They can be used as a very effective strategy if you are using real estate investing as a vehicle to Get Out Of Debt since using Options can be done without becoming obligated for any debt on a property and can be profitable sold or exercised to purchase property that you can then profit from.

Option Agreement

Get a copy of an actual Option Agreement to have reviewed by your own Attorney and then use in your own Real Estate Investing business.

References

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