Leasing Options: Is It Really An Option?

How would you like to get paid 3 times on the same offer? If you want the right to buy property or even vacant land at some point in the future, but pay a price that you determine today, you should seriously consider using the pure option. The option agreement is actually a very simple document that explicitly spells out the terms under which you can buy a property. The beauty of the option is that you can decide today how much you are willing to pay for a property without having to pay for it or even decide if you want it for a period of time, sometimes years in the future.

Let me give you a good example of how you can use an option. Imagine for a moment that you have heard a rumor that an exciting new development may be coming to a specific area. While it is far from certain whether or not it will actually happen, if it does, property values ​​in that area will skyrocket. Wouldn’t it be great if you could have the opportunity to capitalize on future property value appreciations and pay today’s prices tomorrow? With an option contract you can.

The key to making this technique work is to locate owners who may be undecided as to whether or not they are really interested in selling. Another way to take advantage of this tremendous opportunity is by locating properties that you may or may not really be interested in buying. If you can locate a seller who is genuinely motivated to sell your property, but you don’t have the cash to close the deal, you can offer $ 10 to $ 1,000 for the right to buy your property at any time you choose. for a period of two years at a price that you determine today.

You may have a hard time convincing a smart homeowner to grant you the right to set a future sale price today, but it happens with astonishing regularity. You may be surprised to learn this, but many more homeowners than you might think would be willing to almost give you the right to buy their property. However, the law stipulates that there must be a consideration and, in most cases, that consideration is in cash.

However, don’t rule out the possibility that a motivated seller is willing to offer you an option on your property in exchange for something you might not need anyway. That is why it is always a good idea to listen closely and carefully to what people are saying to you when you are involved in conversations with them about your property. Just by listening, you can learn a lot. So keep your ears open and get ready to think outside the box!

The pure option isn’t the most exciting investment tool under the sun, but when you combine it with a lease / rental agreement, you have one of the most beautiful financial instruments and wealth-building tools in the universe. Done correctly, the lease option agreement can give you a tremendous amount of flexibility, as well as multiple sources of income. The key here is to keep the option agreement and the lease / rental agreement as separate documents. I’ll explain why in a minute. One of the most beautiful aspects of the lease option agreement is that you can buy a property under the terms of the lease option agreement from a motivated seller and then turn around and sublet the property to another party. When you sign a lease option agreement with a motivated seller, they will want you to give them an option to consider. Some people may call it a down payment, but the actual legal terminology is “option consideration.” In addition to this amount, you will also agree to make monthly payments to the property owner for a predetermined period of time, such as two years. If you do not exercise your option to purchase the property within that time period, you will lose the money you gave them as consideration for the option.

There are three interesting profit centers when it comes to a leasing option. When you sublease the property to another party, you will be charged for option consideration at the time you sign a contract. Depending on market conditions and your ability to pay, you can generally charge an option consideration amount of $ 3,000 to $ 5,000. This is a great way to immediately get back any money that you gave to the original seller of the property when you signed your contract with him.

In addition to option consideration, the second profit center you have with a lucrative lease option agreement is the margin, the amount between the amount of the lease payment and that of your tenant. This amount could be as little as $ 100 per month or up to several hundred dollars, depending on the details you work out with your option. The bottom line profit center is the one with the greatest potential for massive profits. This is also a margin amount, but in this case it is the difference between what you agreed to pay the seller of the property and the amount for which you agreed to sell the property. For example, if your option agreement with the property seller gives you the right to buy the property for $ 100,000 and you have agreed to sell it for $ 130,000, the difference is $ 30,000. When the transaction closes, you will make a profit of $ 30,000. There are ways to sweeten the boat by offering a $ 5,000 to $ 10,000 discount for exercising the right to buy the property very early in the deal. It makes sense that you want to consider doing this given the opportunity to get cash extremely fast. I would recommend that your contract stipulate that an early closing discount be exercised within 12-15 months after the contract is signed. I want to warn you of a trend that I have been seeing with increasing regularity in lease option agreements.

There are some unscrupulous real estate investors who take advantage of people by accepting large down payments when they know there is almost no chance that they will ever be able to exercise the option to purchase. Knowing that these people are almost certainly destined for failure, they accept their money anyway knowing that in a year or two they can repeat the process again with a new buyer. This is not only dishonest, but immoral. Before you give in to the temptation to do something like this, ask yourself how you would feel if another real estate investor did that to one of your loved ones. I told him that it is important to keep his option agreement and the lease / rental agreement separate. The reason you want to do this is because in the event you need to legally rescind the agreement with the party you are subletting the property to, it can take them to eviction court and it can be a quick and almost painless process. However, if the contracts are one, some judges will misinterpret the contract as a foreclosure proceeding, which can take much longer and cost you much more money in the long run. Leasing options can be a great way to quickly advance your career as a real estate investor.

As you can see very clearly, three profit centers make it a good way to receive a large influx of cash when you initially sign the contract, as well as a continuous stream of positive monthly income during the rental phase of the contract, with a huge bonus. that you get paid when the option is exercised. When those three streams of income converge, the potential could be a river of cash flowing into your bank account.