Use Option for Fix and Flip?

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  • How would this option be used and with kind of Terms?
    Would this be a double close at closing?
    Some Title Companies shy away from double closing.
    How do you control the sale at the end of the fix up if this was thru a real estate agent, yet you just have an option, not title?
    If not an option, what other method to use that would involve the seller financing/participating thru the remodel?

    Hey Allen

    If you’re going to be spending money on a property, I think it is better to have title to the property, not just an option.

    My very first fix and flip was a property I bought from an 83 year old landlord who was liquidating all his inventory. I negotiated to buy it with seller financing, no money down with one payment when to him when the house was sold to a retail buyer who would get new financing. I paid for all repairs myself.

    BTW, my rehab crew were all stunt men from the Walker Texas Ranger television show. (this was in the late 1990s) I’d seen the work they did and it was fabulous. The only problem was I had to work around their shooting schedule which was only a few hours a few times a week. They all love making an old house pretty again even though I don’t think any of them needed the money. They charged very little for the work.

    That said, getting that kind of deal if there is a real estate agent involved is slim to nothing. At the very least, you’d need to pay a large enough down payment so the agent could get their 6% commission. But then you’d have the hurdle of the agent letting you talk directly with the seller to explain the benefits of selling with seller financing.

    In the deal I described above, I did offer the seller a low ball all cash offer. Then I offered about 10% more if he would do a no money down seller financing with one payment when the house sold (no interest). If there has been an agent involved in this transaction, he would probably have never gone with the seller financing but insisted on the all cash offer.

    You’ll get much better deals and terms if you are dealing directly with the owner. You can insist on talking directly with the seller ( with the agent present), to present your offers. That’s about the only way it will work.

    In comparing the Highest Bidder it is similar to using an Option.
    You are using the property…sometimes improving it for the sale(rehab) then controlling the sale to the buyer.
    This can be used with an option as well I believe…no agent involved, direct to the seller.
    And another method is the seller signing a purchase contract, then assigning it to another buyer. Just perhaps…there could be
    a rehab involved…
    Seems like there is alot of techniques that would simulate the option…
    In summary …I see a benefit to comparing these methods for better understanding as in strength and weaknesses.

    HI William

    You use an Option to do a Highest Bidder Sale and for Wholesaling , You use an Option any time you want to CONTROL the property while you do something else to get it sold later. The exit strategy could be to assign your contract, get paid to release your Option, simultaneous close, or close on the Option is you are re-selling with seller financing that wraps the underlying loan.

    I would never want to start spending money on a rehab – even a cosmetic rehab – unless I was in TITLE. If I just needed to spend a little money to get the yard and the house cleaned up so I could have a successful Highest Bidder Sale, that’s ok. But I would not do any painting or carpet or other repairs unless I had already closed and was in title. You certainly could do repairs with just an Option, but I personally would not want to do that.

    Options can also be used with you do a Lease Option. These Options usually have a 3-5+ year window before they need to be exercised. The Option could be passed on to your tenant buyer ( for more $ of course).

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