Copyright 2005 Alex Nghiem
Whether you are an advanced real estate investor or just getting started, real estate options can be an ideal investment technique. A real estate option is a way to control a property without owning it and it locks in the buying price for a specified time.
Most investors don't understand how to use a real estate option, which is unfortunate because it is one of the most powerful tools in real estate investing. In fact, super successful investors such as Donald Trump routinely use real estate options for maximum leverage.
Here are 7 reasons why options are ideal for real estate investors, beginner or advanced.
1. Since you don't own the property, you are not obligated to make house payments. You also don't have to deal with repairs, holding costs or tenants. Imagine how flexible you can be if you don't have to deal with monthly mortgages or on going repairs.
2. Getting started with real estate options doesn't require a lot of cash. In many cases, we have controlled a $100,000 property for $10. This is especially important for a new investor since startup capital is often an issue.
3. Options are great at generating quick cash. Once you have the option locked up, you can market the property to create quick cash. You should focus on making at least $5,000 per option deal, and there's no practical upper limit to how much you can make (one of our colleagues made over $300,000 on a land option deal)...all without having to deal with tenants, repairs or holding costs.
4. Using options is a great way to enter the luxury home market or control properties in hot markets. Since these are higher priced homes, you should expect to pay a higher option fee. We have controlled $500,000 properties using $100 to $1000. In many markets, a $500,000 is a starter home but the point is that you can control a lot of real estate for a very modest fee.
5. Options are scaleable because a single real estate option can be used to control a small deal or a large one.
6. Options offer multiple exit strategies. You can either exercise the option to buy the underlying property; you can sell or assign the option to another party; or you can ensure that the seller has to pay you off because the option creates a flaw in the title.
7. Using options allows you to convert dead leads into viable ones. For an experienced investor, this alone can add tens of thousands of dollars to his business because most deals that are not viable with other techniques (foreclosures, short sales, etc.) are often great candidates for real estate options.
8. BONUS REASON: Real estate options are very flexible and can be used with all types of properties including single residential homes, multi-units, apartment buildings, commercial properties and land. You can also specify the option period, which offers additional flexibility. In many cases, you can even extend the option period, often for an additional modest fee.
In summary, using a real estate option is an ideal investment technique for beginners because options don't require much cash and can generate cash quickly. For advanced investors, using options to convert dead leads into deals can add tens of thousands of dollars per month.
About the Author
Alex Nghiem is the co-founder of Wealthautopilot, which provides coaching and educational products/events for real estate investors who want to turbo charge their results immediately. To get a weekly free newsletter on cutting-edge real estate tips and a 6-part course on real estate options, visit http://www.wealthautopilot.com/course-a