How To Profit With Real Estate Options
Who makes money in Real Estate?
The Seller makes money. The Real Estate agent, Bank, Appraiser, Lawyer, Insurance Agent, and even the City, County and State (tax collectors) make money. The buyer pays even if the 'lucky' buyer buys a distressed fixer-upper for no money down, at the start of any deal the buyer (unless he is very clever) pays something. His profits, which end up being the biggest of all, are deferred.
Each year, people across this country who want to 'Get Rich Quick in Real Estate' fall for the same old sucker-pitch. They buy courses, tapes, manuals and books on 'How To' buy distressed properties, buy with No Money Down, buy tax lien properties or buy fixer-uppers. Then, in regular cycles of about 10 years each, the markets become too crowded. It starts with everybody and their dog making money from ever rising prices. Then all at once, the bubble bursts. Values often sink below the mortgage loan amount, and equity is wiped out. The (financially) strong or those who bought at the start of the boom hold on for an inevitable recovery. The weak hands are foreclosed upon. However, those who bought cheap and are not highly leveraged, can usually rent and hold on for a recovery. Unless they made the mistake of buying in a bad location like say, Detroit. Real estate you buy must be in a great location where there are jobs or other reasons for strong demand.
Real Estate buyers have to make the monthly payments, pay the interest & principal; pay the taxes and assessments; pay the cost of upkeep and maintenance. When they decide to sell usually pay a (6%?) commission to a local Real Estate agent. Of course, they can sell directly to a new buyer.
You could become a Real Estate agent/broker and earn commissions for selling, but being a Real Estate agent/broker requires a few courses and a license. It is a full-time job that only pays well when the market is active and rising. It allows you to discover opportunities (bargain deals and partners) to build your own a Real Estate empire – it also requires a lot of work. Nothing wrong with working. But here’s the lazy man’s way to riches in property.
If you aren't a Banker, Appraiser, Lawyer, Insurance Agent, or Tax Collector, and you want to be on the profitable selling side in real estate deals consider using Real Estate Options.
What Is A Real Estate Option?
A Real Estate Option gives you control of a piece of Real Estate without buying it. By having an option on a piece of Real Estate property, you have the exclusive right to either buy that property or not to buy it. The choice (option) is yours.
It is an exclusive right. That means that no one else can buy or sell that particular Real Estate property during the term of your option. It can be a lot, a house, a condo apartment, a store, a factory or a warehouse.
During the period of your option, the owner keeps paying all of the inherent costs of the property; taxes, assessments, upkeep & maintenance. He also collects the rent. In many cases, you as a tenant can get an option to purchase the rental property from the owner. How?
You ask! “Mr. Landlord, your place is worth about $100,000 would you give me the option to purchase it during my tenancy for $100,000 using any rent I have paid as the down payment?” As often as not, you will get an option. If you ask. In real estate, all such contracts must be in writing. But contract forms are usually free on the internet.
What could be better than controlling Real Estate without buying that real estate? Let the owner keep paying the taxes, maintenance and costs. During the option period, you can either sell the property or sell the option itself, for a profit.
If the seller sells the property to someone else, while you hold this exclusive option, you are entitled to any monies the seller receives over the price you have agreed to pay for the property or if the seller sells the property for less than what he agreed to sell it to you on your option, you are legally entitled to collect the difference from the seller.
Exclusive means exclusive under the law.
- W. G. Hill (guest post)
If you would like to learn more about Real Estate Investing make sure to check Think Like A Tycoon by W. G. Hill, a self-made millionaire and author of dozens of books and reports on Financial Freedom and Self-Improvement.