Sometimes it's impossible to try to gulp down two deals in a single transaction, so a sequential structure provided by a split real estate option is required.  Tim needed $10,000 to buy into a special stock deal.  George only had $5,000 and he was holding on to it.  Tim offers George a $10,000 cottage plus an Option on a lot he values at $13,000 in return for $5,000 cash plus George's promise of an additional $5,000 within 30 days to close the Option on the bargain lot.  Tim then OPTIONS the stock with his $5,000 to hold it for 90 days.

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What one can do with houses, one can sometimes also do with privately held seller financing. Suppose in the foregoing example in the last post about Buyback Options that the transaction had all been done with seller financing. Now the seller has a promissory Note secured by his former property that is paying 10% interest only, or $25,000 per year, for ten years. He’ll or his assigns receive $250,000 at that time.

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Leases and Options resemble interest-only Notes and mortgages with balloon payments when you come to think of it.  A properly drafted Lease incorporates a promise to pay with security for the promise in the form of some sort of collateral in the same way that a Note and mortgage do.  The Option requires a lump sum payoff - or another promise of payment - just like a balloon note.  Oddly enough, when people see a Lease and an Option, they don't perceive the possibilities for wrapping either - or both - of them.  Read on.

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How can real estate Options secure loans?

I was recently approached by someone who had a quick deal that promised to make him $50,000 in just a few months. He already had a potential buyer lined up to lease the house on a five year lease. At the last minute, his lender had dropped a bomb on him at the last moment, and refused to lend him the wherewithal to buy the house. Now he needed a quick loan to finance the house or he’d lose it. The problem was that there wasn’t enough time round up another loan, nor was there enough time for me to do all the credit checks of him and his buyer to see whether or not he was creditworthy. (Unfortunately, this seems to always be the case when people need money.)

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The five most important words in any real estate transactions are WHAT'S IN IT FOR ME?

What are some of the advantages to using real estate Options? Of course specific benefits will vary according to the individual needs of the parties, but we can make some general statements with regard to Options that might apply to everyone at one time or another.  Let's start with LEVERAGE.

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The profit motive can bring out the best of us, encouraging us to use creative tools such as real estate options, but can also bring out the worst of us. There were a couple of friendly rivals among Exchangors a few years back named Cliff and Art. Art was far and away the most successful financially, but Cliff was the more artful – as in artful dodger – of the two. No matter how hard Art tried to best Cliff in a deal, he never quite pulled it off.

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There are two main reasons why landlords offer tenants a Lease/Option on rental houses: They want higher rents, but don’t necessarily want to sell their house; or they do want to sell their house and want to give the occupant a chance to either clear up bad credit scores, or save up a down payment, or earn some kind of rental credit attributable to rents paid or improvements made.

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Many of the people who are now in trouble with negative cashflow and dropping equities should have been looking at Option contracts.  Not to be confused with Lease/Options, pure real estate Options are merely purchase contracts that can tie up a house, but that allow the person who buys the Option a chance to "test drive" a house to see if it can be sold before committing to closing on it. Instead of confronting high payments in a falling market, the Optionee simply walks away unscathed. Why anyone would run all the unnecessary risks

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