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How and when to use an option to purchase real estate 

(and make more money every time)

Sometimes all you need is a simple explanation of how an option to purchase can be one of your best and most profitable tools.

You know it's a good deal, maybe even a great deal but there's one problem:

  • You don't have any money to buy the property yourself.

All the same, you can make money from this deal by using your option to purchase agreement. Without using any of your own money.

Here's an example of how a deal like this might work:

While walking the neighborhood, Jay notices a fellow cleaning out his garage and packing up some boxes. Stopping to say hi, Jay learns that he's been transferred out of state and is getting ready to sell the house, but he hasn't listed it yet. 

He tells Jay that he hopes to get about $240k for it, which is the average market value for this model, and he adds that it's in good repair. He'll be moving regardless a couple months.

Jay asks for a quick tour, and sees that yes -- it's just like he was told, maybe a bit dated, but in good condition. He asks the neighbor what the least he's take for it without a commission involved.

After a small pause, he tells Jay that he could maybe take $220, but not much lower since he has a small mortgage to pay off and needs some of the equity to find a new house once he moves.

Quickly doing the math, Jay pencils out in his mind that if the seller was willing to give him an offer to purchase for $210, he could market it himself and keep the difference between what he would sell it for and the option price of $210. 

Simple ABCs for using an option to purchase with this real estate deal 

Jay knows he could sell this house quickly, if he offered it for $230k. That means he would profit $20k for finding a qualified buyer. 

He negotiates with the seller for what he feels is the maximum he could offer, and they settle on $210 if Jay could bring a qualified buyer in the next 60 days. They both sign an Option to Purchase Real Estate Agreement, and Jay heads off to call his potential buyers with this news.

Can you visualize what has happened here with this option deal?

Has Jay put in any money of his own into the deal? Not a dime. All he has in the deal is his time to market the property. 

What if the seller goes ahead and lists the property with a Realtor? Jay just tells the seller that if he does list it, to be certain to add Jay's name to the excluded buyer list on the Realtor's form, so when Jay brings in the buyer, the seller is not obligated to pay a Realtor commission. 

What about closing costs, who pays those? It's common that the seller of any real estate pays their own 50% and the buyer pays their 50%. So nothing to get excited about here, right?

Why would a seller would give you an option to purchase the property?

Plenty of good reasons, and here are just a few you'll come across:

No one wants to lose money, but when a seller really needs to sell their home before some event happens to them (divorce, move out of town for a job like Jay's seller, a pending foreclosure, etc.), sellers tend to get a bit anxious. Here's where you can be a Superhero to that seller.

You'll find some of your prospects in the for sale by owner category. But, it's tedious and hard work to manage a house for sale by owner, especially if they work full time, too.

Now, you can take on that responsibility for them, easing their anxiety -- when they give you an option to purchase the home. It can be like a weight lifting off their shoulders. For the seller, it is like having a personal real estate agent working for them and not paying a commission.

What type of deals are best for using an option to purchase agreement?

In every city in the USA there are nice sellers in nice houses that for one reason or another need to sell their home. Fast.  And I'll say it again -- you can be their Superhero.

I use this agreement when the seller of the property is not open to a lease with an option to buy (which is my first choice). It's a good tool to use with nicer homes in good areas where the seller has enough equity to make the deal profitable for both of you.

Sounds terrific, but do I need a Realtor License, it it legal?

No license is needed because once a seller give you the right to buy the property, you then have an equitable interest in the house. There are a handful of states where the law is a bit gray, so it's best to check the legalities i your state before you start. I've gathered all that info for you, right here... 

Ready, set get your FREE Option to Purchase Real Estate Agreement 

This is the exact form I use, but feel free to have your own real estate attorney look it over before you sing up your deals. 

Here is the link to get your FREE Option Agreement, which is a printable PDF. 

Print off more copies than you think you'll need, and make sure the seller has a copy of the signed agreement, too. I use a free scanner app on my phone (tiny scanner) to scan the filled out and signed agreement, then email it to the seller. You'll want to keep the original.

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