The Power of Real Estate Option for the Buyer

The Power of Real Estate Option for the Buyer

We cannot fully understand the power of real estate option towards the buyers if we are not going to expose its meaning first. The simplest definition of real estate option is the right to buy a property for a predetermined price or strike price during an agreed period of time – it’s a right and not a binding obligation.

For example, a property owner may put his property out for option; this act will give the option buyer the right to buy or not to buy the property for a predetermined amount during a predetermined period of time. The option buyer makes profit if the value of the property will increase during the period of the option.

Real Estate Buying Strategy

If you’re looking for a strategy that will lower the risks, allow leverage, and cut on cost, then the real estate option is it. This strategy also makes possible to minimize downside and an option consideration lower than an earnest money.

There are other benefits that a real estate option could bring to the buyer like those being mentioned above so that it is best to inspect them one-by-one to really avail its benefits.

The number one benefit of a real estate option is possible in an exclusive option: the option buyer is given full control over the property during the option’s period. That is to say that the property is not available to other buyers while you hold the option. Even though you have not spent purchase money yet, you have 100% control over the property.

Another benefit of real estate option is the reduction of the risk involved with the changing of the property value when the option matures. If you’re the investor or buyer, you reduce your risk of paying bigger money than what the current value of the property during the option maturity. If you think that the price of the option is bigger than the current value of the property at option maturity, you can just refuse to buy the property without any legal consequences on your part. The only money you would be losing is the option consideration.

Not only this strategy can be a great money saver, it could be a leverage builder, too. To do this, you should include a provision in your agreement between you and the property owner to allow you to sublease the property to another person. You could generate income from the difference of the rent money your tenant pays you and your obligation to the property owner. You could practically say that your rent is being paid by another person in this sense.

Building Equity with Real Estate

In order for you to build equity towards the purchase of the property at option maturity, you could include in the agreement that a portion of your monthly obligation will go to the purchase price of the property. What’s more exciting is that when you have a subtenant, the rent you get from your subtenant will pay your monthly obligation plus it’s building equity towards the purchase price. This is a great capital saver for you.

Before signing up for anything, however, be sure to check the title and the status of the property. Some problematic property offered for option has the risk of being foreclosed or reacquired by the government so that instead of making money, you’ll lose money instead. Therefore, you should now fail to double check any property you’re interested to buy an option to.