What is an Option to Purchase & How does it work?
My name is CJ and I am new to Real Estate. I have read a few books on Real Estate and some about an Option to Purchase and this sounds like it would be very profitable if one knew what they were doing. If anyone can explain this to me, I would greatly appreciate it. Also, is there a difference between an Option to purchase and a Lease/Option? <IMG SRC="images/forum/smilies/icon_confused.gif"> [ Edited by cjmacks on Date 06/20/2003 ]
An option to purchase is a contract that once signed gives the buyer the 'option', but not the obligation, to purchase the property. It has a predetermined time limit for the buyer to act, during which time the seller cannot sell to anyone else. Usually it is obtained by putting down a nonrefundable 'option consideration' or deposit.
I straight option is HARD to get because it locks the seller into a contract to sell at a set price but the buyer doesn't have to buy.
A lease option (L/O) is simply a lease agreement with an option to purchase attached to it.
Roger
Thanks Roger, that helped a lot. One other question. Since I am fairly new to the Real Estate Business, should I continue to study and learn the ropes for a while longer or is it a good idea to go ahead and learn form experience? There are quite a few good deals in my area. They have been on the market for some time and I am sure the owner would be glad to do a lease purchase option. As much as I want to get started quickly, I also want to know exactly what I am doing. I really don't like making mistakes, they are to costly. Carol
cjmacks,
Glad to meet you.
There may be some who would advise you to 'just do it.' I say don't let your first deal be your last deal, because those that advise you this way have no liability in the deal but you do.
In plainer terms since it is close to the forth of July, you may have lit off a firecracker, but that doesn't mean you should sign up with the local bomb squad to dismantle explosive devices.
Learn your craft, take the time to study, become proficeint in your method of investing, then have the confidense to become involved in the wonderful world of creative real estate investing.
Welcome on board this board, those deals will still be there, they always are.
John $Cash$ Locke
cjmacks,
I'm sure there are investors who would be willing to help you through your first deal or two. I had the benefit of having gone through Ron LeGrand's course a couple of times before I started. But, don't let what you don't know keep you from moving forward. You'll learn from everything you do.
Concerning the difference between options and lease/options, a lease/option is a commitment to taking possession of the property and paying the montly lease payment with the specific intent of subleasing the property to a tenant/buyer. This is low risk when you very confident you can find a lease/purchase buyer.
The option on the other hand only gives you the right to buy at a certain price. The seller doesn't give up too much control unless the option is exclusive. With a non-exclusive option the seller only has to let you know immediately if he or someone else sells the property before you do.
I use options sometimes for properties where I'm a little concerned about whether I can find a lease option buyer and I agree with the seller to try to market his property and switch to a lease/option agreement if I find a buyer who needs a lease/purchase approach to buy. This works well with sellers who are sufficiently motivated and keeps me from having to risk paying lease payments while I find a buyer.
Thanks for your help. I appreciate any and all information that I can get on this subject. Any seasoned investors out there that are willing to walk this newbie thru a deal or two? I have been reading a book by Peter Conti "How to Create Multiple Streams of Income---" it is very informative and very interesting. Any help appreciated. CJ