Real Estate Options

With today’s market as it is, many active homebuyers are looking for ways to continue buying while reducing risk. For some people this is easier said than done. However, I am willing to bet that most people are unaware of a simple buying strategy that has been around for years. Buying strategies that even Donald Trump has incorporated into his early investment career. This strategy is known as the real estate purchase option.

A real estate option should not be confused with a lease option. They are 2 completely different things. Basically, a lease option is when a home owner becomes a landlord, allowing the person renting the home the option to purchase the home after a certain period of time. Where as a purchase option does not imply that. The good thing about a simple option is that you never have to buy the house. The risk is almost nil with this type of contract. The only thing you can lose is the money deposit option. With an option, you’re not putting up a security deposit right away. That will come only when you decide to buy within the term. I usually give sellers $10 for the option. Remember that you are paying for your right to use this contract.

Now, if you decide to buy the house under the option, you will need to sign a standard purchase agreement. This contract will go deeper into the buying process and, in the end, better protect you. Another question people ask me is whether an option is assignable. The answer is yes, you can assign an option as long as you write “and/or assign” after its name. A seller should have no problem with you assigning the contract, as long as you let them know. Our job as investors is to be as ethical as possible. What if a real estate agent tells me that assigning a contract is illegal? First of all, a real estate agent for the most part has no idea what investors do. They have a license to sell real estate, but remember that they do not have a license to practice law. They could get into a lot of trouble if they demand that something be illegal. Assigning a contract is not illegal. Keep in mind that when buying a home, you must present it through a title company or closing attorney to purchase it. If it was that illegal, do you think an attorney or title company would allow it? NOT! Therefore, it is better that you do not listen to what the real estate agents have to say.

Options are a great way to start investing. Especially if you don’t have a lot of money to start with. They eliminate the risk if you do it right. You will notice that not all sellers want their home to be under an option. For the most part, the seller wants confidence from you and if you have an option, that doesn’t represent as much confidence as a standard deal would because remember we’re not obligated to buy under an option. That’s why I normally only get one option for 45 days. Most sellers aren’t going to worry because their property isn’t tied up for very long.

Using an option in today’s market is a great way to buy. It’s a must if you’re trying to sell wholesale. I used them when I started, and I still use them today.