What type of transaction have you found to be the most profitable?
With investments you never know which will be the most profitable until the final inning. Since we don't advocate SELLING investment property, profit is difficult to assess. Where we have made the highest yield based upon invested capitals, Options and Lease/Options clearly take the cake. Typically, I've bought 6 month Options at 80% of current fair market value on a $100,000 house for $100. By selling the Option itself or the property at a price which would be 90% of fair market value, I've made $9900 or 990% on my investment within the 6 month period. That's quite typical.
The real profits are made when an Option is used to control larger properties such as businesses, apartments, condos, land, etc. Direct ownership of these larger properties wouldn't be feasible for most people because of the costs of operation, management, interest, taxes, insurance, etc. On the other hand, buying a pure Option eliminates all expense other than the initial costs, giving the Optionee time to let the market rise or to find a buyer.
I keep hearing about buying and selling options, but I don't really understand how they work. Please expand on this subject for me.
An option is a contracted obligation to leave an offer (to either buy or sell) open for a stated period of time. This obligation is purchased from the Optionor by the Optionee for a consideration which might be anything they can both agree on. Once purchased, the option gives the holder control over rights of sale in a property under specified terms and conditions as to price and payment. Options should be recorded to protect the purchaser, and where large sums or long terms are involved, a Mortgage or Deed of Trust should also be recorded to secure it against any intervening liens or transfers of the optioned property.
In most cases an Option can be structured to prevent any further encumbrances including leases and mortgages. Under current tax law, if held 12 months or more an option can be sold for long term capital gains. When combined with a lease, an option can produce cash-flow and all documents necessary to close the sale can be held in escrow, fully executed, to provide for quick action. In short, an Option is just like a contract to purchase which has been signed by the Seller but not by the purchaser, with the time of acceptance held open for the entire term of the Option. It has all the provisions of any purchase contract to protect everyone.
Many more questions and answers about ALL aspects of real estate investing in Jack Miller's new REAL ESTATE INVESTORS MOST FREQUENTLY ASKED QUESTIONS MANUAL which will bridge the gap between what you know and what you need to know to achieve success as a real estate investor. Learn how to buy, hold, and pyramid houses to build financial independence.
or all you ever wanted to know about
single family houses but were afraid to ask . . .
Here are additional categories of frequently asked questions which are discussed in REAL ESTATE INVESTORS MOST FREQUENTLY ASKED QUESTIONS MANUAL
Chapter 1 GETTING STARTED 7
Chapter 2 WHAT TO BUY? HOW MUCH TO PAY? 21
Chapter 3 JOINT VENTURING CAPITAL TO BUILD WEALTH 33
Chapter 4 EARNING BROKERAGE PROFITS 41
Chapter 5 NEGOTIATING AND BUYING TECHNIQUES 49
Chapter 6 NOTHING DOWN AND NOTHING A MONTH 57
Chapter 7 PURE OPTIONS . . . LOW RISK LEVERAGE 69
Chapter 8 FORECLOSURE AND DISTRESS SALE PROFITS 75
Chapter 9 PAPER PROFITS . . BUYING AND SELLING NOTES 79
Chapter 10 MANAGING AND CONTROLLING YOUR FINANCES 83
Chapter 11 HOW TO SOLVE CASH FLOW PROBLEMS 93
Chapter 12 HANDS-OFF TENANT MANAGEMENT 103
Chapter 13 MANAGING AND CONTROLLING PROPERTY 117
Chapter 14 REAL ESTATE TAX SHELTER CONCEPTS 133
Chapter 15 TAX FREE EXCHANGING 141
Chapter 16 PYRAMIDING YOUR PERSONAL FORTUNE 147
Chapter 17 PORTFOLIO MANAGEMENT STRATEGIES 157
Chapter 18 FINANCIAL SURVIVAL IN AN UNCERTAIN WORLD 169