An Option Agreement is a powerful tool to use when investing in real estate.
This agreement gives you the right, not the obligation, to purchase a property for an agreed upon price during an agreed upon time frame.
Once you have a signed option agreement the seller is obligated to sell but you are not obligated to buy. This really minimizes your risk.
This type of an agreement can be used to control all types of real estate including residential, commercial, land, agricultural, industrial, etc.
The term of the option is negotiable. It could be anywhere from a few weeks to many months or even years.
Option Agreements can be structured with very little money out of pocket. As little as $1 just to make it a binding agreement. It is completely up to you and the seller. This is completely negotiable.
When To Use an Option Agreement
There are many cases where an Option Agreement would be an effective tool to use to control a piece of real estate.
Here is one example:
You have found a motivated seller looking to sell his property. The price at which he is willing to sell at is not quite low enough for you to acquire yourself but you know that it would still be a great deal for another investor.
Rather than passing on the deal completely you can now reach out to other investors who may have an interest and see what they would be willing to pay for the property.
Let’s say you have an Option Agreement signed for a price of $200,000. After you reached out to other investors you found one that is willing to pay $220,000 for it. You can now assign your interest in this property to the other investor for a $20,000 fee.
Just by using this simple agreement and understanding this strategy you can make money from deals that you once thought were dead simply because they did not meet your buying criteria.
Anatomy of an Option Contract
In writing- A real estate contract must be in writing
Identify the Parties- Full legal names of the parties involved. If married use the spouses name as well.
Identify the Property- At the very least use the address but if possible use the legal description
Option Price- Sales price that the parties agreed upon.
Consideration- Dollar amount of the consideration. Can be as little as $1 just to make it a binding contract.
Option Term- A specific date by which the buyer must exercise the option.
Signatures- A real estate contract needs to be signed in order to be enforceable.
Being a real estate investor, it is very important to understand a handful of creative techniques to purchase properties. This will open up many more doors for you that you never new existed before. It will give you more options to close more deals and therefore make more money.
I hope that this post was of great value to you. If so, please share with others that may benefit as well.
Here’s to your success!