Options Or Purchase Contract? Opinions?
Just curious if anyone is using options to flip houses.
Is there any advantage to doing a Purchase Contract?
It seems the option would be a simpler/quicker way to do the deal. And options can be sold/assigned just like a purchase contract.
(FYI, just to be clear, I'm not talking about 'a lease with an option to buy.' There's a forum dedicated to that model.)
Thoughts?
-WG
An Option contract provides the right, but not the obligation, to buy or sell at a specified price during a specified period of time. If the option contract is exercised, the writer is responsible for fulfilling the terms of the contract.
When an option is not exercised, it expires. Nothing changes hands. Options are most frequently used as leverage. Allows the holder to control the property in a limited capacity for a period of time.
The purchase contract is the legally binding document that sets forth the terms of the sale, establishes the rights and obligations of the parties involved, specifies the actions to be taken in order to close the sale, and establishes the time frames for those steps to be completed. Specifies recourse for both seller and buyer if terms of the contract are not followed.
An option provides an agreement but not an obligation to follow through for the buyer!
A purchase contract establishes an obligation to follow through with the terms of the contract for both buyer and seller with stipulated consequences for not following through.
Now what would be more valuable when flipping? A binding or none binding agreement? For me as an investor I would favor a binding agreement.
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Success Comes From Helping Others First! Make It A WIN-WIN Deal! Money Is The Benefit Not The Goal Of The Deal! Comments I share are based upon my experience.[ Edited by JohnMichael on Date 01/02/2005 ]
Thanks for the reply.
I've used options many times in my commercial dealings and am completely clear on the minutiae.
My question was more pointed toward being a BUYER of a distressed residential property, then flipping it.
If I'm buying a piece at rock bottom that I intend to later sell to a rehabber, it seems an option agreement makes as much sense as a purchase contract. In fact, the option will assign just like a purchase contract as long as it's done before expiration.
So for a buyer, the option is a much better deal. If I'm selling, I want the strongest possible contract, which would be a Purchase contract.
We're saying the same thing here...I'm just curious if any flippers are using option agreements.
FYI, I use options to lock down commercial land, divide it, then get letters of intent from strong commercial buyers before executing the option. Works like a champ in most cases.