What’s a Real Estate Option?

A real estate option is quite straightforward. A real estate option is, in reality, not much different from a stock option. For the buyer, it is an opportunity (but not a requirement) to purchase for a set price by some future date. For the seller it is a commitment to sell for a set price by a set date.

How a Real Estate Option Works?

1. You locate the property and make an option offer.

2. If the seller accepts, you give the sellers some option money. They give you the option to buy the property at a fixed price for a certain amount of time.

3. You later exercise your option by buying the property, or in our case, by selling your option to a rebuyer for a profit.

Note that in an option, you the buyer are not committed to purchase. It’s at your discretion. The seller, however, is committed to sell. He or she must go through with the transaction, IF you execute your option.

Why would a seller agree to such a thing? Cash!

As noted, in order to get an option, you pay the seller some money. It can be any amount, but it has to be enough to persuade him or her to give you an option. A typical amount might be between $500 and $5,000, depending on the value of the property.

The term of the option is likewise negotiable. Usually it runs from 30 days to 6 months, but it can be longer or shorter.

Let’s take an example: You find a property that is $30,000 below market. Instead of buying it, you give the seller $1,000 for an option to buy the property for $100,000 anytime during the next three months. Now, you’ve locked in the price and the property.

Next, you find a buyer to purchase the property at $130,000. You have about two months (plus a month to close) to accomplish this. In reality, all you have to is find someone who will pay more than your option price to make a profit.

Once you find your buyer, you sell that person the property. Escrow is opened and, as part of the process, your option is exercised. The rebuyer purchases the property, which you technically buy from the seller by using your option. As a practical matter, the rebuyer gets a new mortgage and puts up a down payment, the seller gets his or her price as defined by the option agreement, and you get the difference, in the case of our example, $30,000.

What Are the Plusses of the Option?

* You’ve tied up the property at a fixed price.

* You don’t have to qualify for nor obtain a mortgage. You also don’t have to come up with a down payment.

* You have time to find a buyer, as long as six months or more.

* You don’t own the property, so you’re not responsible for mortgage payments, taxes, insurance, maintenance, or repairs.

* You’ve got a relatively small amount of cash tied up.

What Are the Minuses of the Option?

* You have to put up some money. (Obviously, as little as possible!) The seller gets this money and keeps it. Depending on how the option is written, it may be deducted from the sales price to you when and if you exercise your option. Note: I’ve often optioned properties for $100 or less. The real value I bring the seller is an addition angle on marketing the property to get it sold or out of their hair.

* If you don’t exercise your option before it expires, you lose your option money (the amount you put up).

* If property values go down during the option period, you’ll have trouble finding a buyer.

* The seller may want a quick sale and refuse to give you an option.

Options can work for both buyers and sellers. For a buyer, there are some obvious advantages such as tying up the property for a small amount of money and giving you time to locate a rebuyer and conclude a sale. For a seller, they provide either income (the option money) or a sale.

In What Situation Wouldn’t I Be Able to Use an Option?

The biggest problem with options is that most sellers willing to sell below market want a quick, not a delayed sale. They may be facing foreclosure, or other financial problems. There could be a divorce or a death in the family. In all such cases, they may need to get cash now. Your offer of an option may be appealing, but it won’t cut the mustard if they need to be out of the property within 30 days (which, indeed, may be the compelling reason they are willing to sell for a low price).

Now tie in the use of leases, or other creative finance techniques to create unlimited advantages to the seller and profits for yourself. In an early deal when I was getting started real estate investing, I offered a seller an option to take a property on a lease option, meaning if I found a suitable sub-tenant buyer, I could lease option it from them; thus creating a “sandwich lease option.” In the short term, I had no payments, no utilities no hassles other than marketing the house on rent to own terms.

To your investing success,

Udo Ginczek

http://www.diversityhomes.com

The very first quality one must possess if he wants to try his hand in wholesaling real estate is the willingness to learn and be trained. Treading through unfamiliar territory is scary stuff if one is not properly equipped, and he might get lost amidst a jungle of the unknown. Learning the tricks of the trade is also an important aspect of the game, and one’s willingness to know it all will give him far better advantages in the business than he could ever imagine.

The second quality one must possess is the willingness to invest time and effort even if direct results do not seem at all apparent. Although several months may pass without good news, it is important for one who has his foot in the industry to hold on and wait. It is this quality which would save him from giving up after investing a lot of himself in the business.

The third quality one must possess is self-determination. If one wants to conquer the wholesaling real estate world, he must have the ability to push himself ahead. Never having to say die is a quality each and every wholesaler should possess, and the ability to motivate oneself into scaling greater heights is an ability which would actually take a real estate wholesaler there.

The fourth quality one must possess is discipline. If one knows how to teach himself to work everyday with all the energy he can muster, then he is close to achieving what he has set his heart to having in the first place.

The fifth and last quality one must possess is optimism.&nb sp; Negative attitudes and hear-says should not discourage a real estate wholesaler from pursuing what he has to in order to make life better for himself and for everyone concerned. Neither should anyone influence his attitude toward the business, because once in it, it is a must for him to be the captain of his ship and the master of his soul.

The ingredients to success in a business such as real estate wholesaling are diverse and manifold, but the most important thing one needs to be able to make it big lies in himself alone. It is he who has the capacity to do everything to be able to realize his prospects, and the desire which fuels his heart in doing so is the gasoline which should keep the engine going.

Real Estate Wholesaling is all about putting one’s fate into his own hands. The right attitude is the key to being able to steer one’s ship into that part of the ocean where a certain kind of serenity can be found, one that permeates the atmosphere as the ship sails calmly on.

Udo Ginczek

http://www.netbuc.com

#2.) You Do Not need good CREDIT to get Started! BAD CREDIT does not effect your ability to start Wholesaling real estate, Anyone can get Started TODAY!

#3.) You usually never take ownership of the properties that you are Wholesaling! NO OWNERSHIP HASSLES to deal with!

#4.) No Destructive tenants to deal with…EVER!! Tenants SUCK!

#5.) No Holding Costs to suck Your wallet dry while You’re hoping and praying to sell a property for a profit!

#6.) No Fixing or Repairing Property….. EVER!

#.7) No Contractors to deal with! I CRINGE when I think about dealing with the extremely dangerous “Contractor Factor” side of Buying-Fixing and Selling Real Estate and hoping to make a profit!

#8.) Your Deal PROFIT is ALWAYS “locked-in” and Guaranteed at every closing! I average $ 5,000.00 to $ 7,500.00 every time a deal is closed!

#9.) You can do multiple deals at ONE TIME! And, it never effects Your debt to income ratio because YOU NEVER borrow any money to wholesale houses!

#10.) It’s the ONLY style of real estate investing where you can do 10-25-50-100 deals in a years time, and at years end, own ZERO properties! And owning ZERO Properties means ZERO HEADACHES in my book!!

Well there you have it people! My Top 10 Favorite reasons for Loving Real Estate Wholesaling! 10 GOOD reasons if I do say so myself!

Udo Ginczek

http://www.netbuc.com