Option to buy

[auggflo]

Option to buy - can someone explain how this works to me? Thank You.

[beaver124]

Of course Ill explain, RE options are my favorite. First off, here is a good example of an option:

Let’s say you found a luxury home worth $500,000.  
You purchase an option to buy the home at $425,000 anytime within the next 90 days.  

On Day 47, you find a buyer who will pay the full $500,000.  

You cash in your option, pay the seller $425,000 … and keep the remaining $75,000.

Now just the things most people dont understand. What is buying an option? Basically buying an option is just paying the seller to let you sell the property. So once you sign the contract with the seller, you could either do two things. 1) You could assign the contract off to another investor. 2) You could find a buyer that will buy higher than the set price you signed the contract on, have the title agent do a simultaneous closing, then receive the difference as your profit.

In legal words, when the seller signs the option, you have the exclusive right to buy the property within the agreed on period of time. Basically, you are in control of the house without actually owning it.

Good Luck

Beaver124

[auggflo]

Thank you for explaining. How do I approach a seller with an Option To Buy? I'm trying to understand how to present the option so that the sellers is ok with it. Again thanks for the help.

[beaver124]

Its not really about how you present, its your timing. The seller could be going through divorce, making double payments, stuff like that. But lets just get you ahead of the game, it is the exact same risk with a 100000 dollar house than a 10000000 dollar house. All you do is give a payment of 100 dollars to them and thats it, you are not personally liable for anything on the house even though it is recommended that you use an LLC to do everything in this business.

Beaver124