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
Ownership of real estate carries with it a much higher component of risk than ownership of other investment: Risk of loss or damage due to violent weather. Economic risk that comes about because of changes in the local environment, business climate, tax rates, etc.
Market risks that can be triggered by a collapse in the credit markets. Environmental risks associated with past and future ownership. Demographic risks that are brought into focus when there is a general exodus from an area such as happened in many areas of the Northeast and New England. Liability risks created when a mortgage is signed with personal guarantees, or when someone one is injured on or in proximity to a property.
Much of this risk to property owners can be offset with various forms of insurance at considerable expense, but much of it cannot be offset this way. The surest way to avoid risks associated with the purchase, ownership, use, and disposition of property is to avoid owning it in the first place. In today’s market, there are very few sellers out there that wouldn’t welcome an infusion of cash from a potential buyer and be willing to sell an Option to him or her. This is particularly true of builders and developers who are caught between a rock and a hard place simply because they failed to Option the property that they hoped to be able to sell at a profit. You should be seriously considering how to take advantage of the current market using Options.
