would you like to get paid 3 times in the same deal?
you'd like to have the right to purchase a property
or even a piece of vacant land at some point in the
future, but pay a price you determine today, you need
to seriously consider using the pure option. The option
agreement is really a very simple document that spells
out in explicit detail the terms under which you could
purchase a property. The beauty of the option is that
you can decide today how much you're willing to pay
for a property without having to pay for it or even
decide whether you want it for a period of time --
sometimes years into the future.
me give you a good example of how you might utilize
an option. Pretend for a moment that you've heard
a rumour that an exciting new development may be coming
to a specific area. While it's far from certain whether
or not it will actually happen, if it does, property
values in that area will skyrocket. Wouldn't it be
great if you could lock in an opportunity to cash
in on future appreciations in property values and
pay today's prices tomorrow? With an option agreement
Done correctly, the lease option agreement can give
you a tremendous amount of flexibility as well as multiple
streams of income. One of the most beautiful aspects
of the lease option is that you can purchase a property
under the terms of the lease option from a motivated
seller and then turn around and sub-lease the property
to another party. When you sign a lease option agreement
with a motivated seller, they're going to want you to
give them an option consideration. Some people may call
it a down payment. In addition to this amount, you'll
also be agreeing to make monthly payments to the property
owner for a predetermined period of time, such as seven
years. If you fail to exercise your option to purchase
the property within that period of time, you'll lose
the money you gave them as an option payment.
are three exciting profit centres when dealing with
a lease option. When you sub-lease the property to a
tenant buyer, you'll collect a deposit from them at
the time that they sign a contract. Depending on market
conditions and their ability to pay, you can generally
collect option consideration amount of £3,000-£5,000.
This is an excellent way of immediately getting back
any money you may have given to the original seller
of the property when you signed your contract with them.
addition to option, the second profit centre you have
with a lucrative lease option agreement is the spread
- the amount between your mortgage payment amount and
your tenant's rent. This amount could be as little as
£100 per month or as much as several hundred,
depending upon the details you work out with your optionee.
The final profit centre is the one with the greatest
potential for massive profit. This is also a spread
amount, but in this case is the difference between what
you agreed to pay the seller of the property and the
amount that you have agreed to sell the property for.
For instance, if your option agreement with the seller
of the property gives you the right to purchase the
property for £100,000 and you have agreed to sell
it for £130,000, the difference is £30,000.
When the transaction is closed, you will realize a £30,000
profit. There are ways to sweeten the pot by offering
a £5,000-£10,000 discount for exercising
the right to purchase the property very early in the
you can see very clearly, three profit centres make
it a good way to receive a large influx of cash when
you initially sign the agreement, as well as an ongoing
stream of positive monthly income during the rental
phase of the contract, with a huge bonus paid to you
when the option is exercised. When those three streams
of income converge, the potential could be a river of
cash flowing into your bank account.