Options are the most under-used real estate strategy mostly because they are not understood and there is very little training about real estate Options except here at CashFlowDepot. An Option can allow you to make big profits without the risks associated with ownership of real estate.
An Option can be as simple as a purchase contract with a contingency clause that something else has to happen before you will close. But Options can also be long term to control future equity and even cash flow.
Options provide the cheapest and safest way to get the benefits of ownership of real estate without actually owning the property. Depending upon how they’re structured, Options can transfer gain in property values, income and loan amortization from the Optionor to the Optionee.
They allow people with appreciated real estate to capture profits in their market when a property is sold, and then to be able to re-invest these profits tax-free in bank or government owned distressed property.
In areas where depressed prices promise a rebound in values, an Option enables one to control the profit on property at very low cost while awaiting the return of higher prices. At the same time, the Option eliminates all the liability and management chores one usually associates with ownership of real estate.
If a person wants maximum leverage without negative cash flow, an Option is just the ticket. Once the Option consideration has been paid, that may well be the all the money that has to be invested until the Option or the optioned property has been sold to capture the gain – or exercised. No matter how risky speculation on property might be, the entire risk of any venture is the amount paid for the Option. Of course, one might avoid paying cash for the Option, but instead barter fix-up/rehab efforts.
Options are used to control a property prior to doing a Highest Bidder Sale.
When an Option is combined with a Lease, it’s possible to capture cash flow together with appreciation and still eliminate management by sub-leasing to another party at a higher price. I Lease-Optioned my first office building, with no payments for the first 2 years, in return for my remodeling it. I later exchanged it with an $80,000 profit tax-free. That’s right; an Option on real estate can be sold and either another Option can be purchased with the proceeds, or another property; free of capital gains tax or recapture.
Or, by combining an OPTION to LEASE vacant space in a partially rented building at a point in the future, but at today’s low prices, the Optionee can get the benefit of highly leveraged cash flow once the space is rented plus any added value that increased net operating income might bring to the bottom line. An investor desiring a 10% yield would value each additional dollar of net income at $10. So adding $50,000 in net rents would add half a million dollars to the value of an Optioned building. This brings us to yet another advantage of Options versus ownership.
With the high leverage and low risk Options provide, a “little guy” can play in a much larger real estate game. Suddenly a whole new world of opportunity can open up. Large expensive houses such as the market offers in Washington DC, New York, California, and Lake Tahoe become feasible for investors. So do expensive land parcels a few years down the path of progress. So do distressed apartment and condo properties, retail strip centers, mobile home parks.
CashFlowDepot has the largest selection of real estate Options training. SEE DETAILS HERE