Real Estate Options

What exactly are real estate options? Real estate options give the investor control of the property without actually buying it. An option gives the investor exclusive rights to either buy the property or let it go once the option period has passed.

It gives the investor a choice. By exclusive rights, it means that another prospective buyer cannot purchase the property, nor can the owner sell the property during the option period. There are two types of real estate options. They are straight options and lease options. The differences between the two options are as follows:

A straight option allows the investor to get an option to purchase a property at a locked in price for a specific period of time. Once the investor has the option, he can sell the option to another investor, if he so desires, and make a profit. For example, if the owner’s home has been on the market for far too long and is worth $300,000 and has $150,000 equity in it, and the owner is willing to give up some of the equity to sell it, the investor who has the option can sell the option to another investor, for instance, for $25,000. The primary investor walks away with $25,000, the second investor who buys the option from the first investor will make a profit when the house is sold, and the owner’s house will finally be sold, and he will also make a profit. A straight option offers many advantages to both the seller and the buyer.

The second type of option is the lease option. A lease option allows the investor to take control of the property subject to the owner’s existing mortgage. When the investor signs the lease agreement, he includes a clause that says he can sublease the property to another tenant. The investor would pay the mortgage, and the difference in the tenant’s rent and the cost of the mortgage, or the cash flow, would be pocketed by the investor, along with the non-refundable deposit that the tenant pays up front. This non-refundable deposit would be applied to the agreed upon price as a down payment in the agreement lease option between the investor and the new tenant who has a lease option to purchase the property at a later date. The investor would also make a profit when the tenant closes on the house. His profit would be the difference between the agreed upon purchase price between the investor and homeowner, and the agreed upon purchase price between the investor and tenant.

In the event that the tenant defaults on the lease option or decides not to close, the investor can lease the property to another tenant for a specified purchase price. He will also make additional money from the upfront deposit from the second tenant. The lease option offers numerous advantages for the seller, the investor and the buyer.

These two real estate options are a simple and easy way for a real estate investor to make money.

Real Estate Options