Property Investing often requires creative strategies to make it successful. Professional property investors often use the option contract as a tool to develop some useful investment strategies. Here are some of the ways the option contract can be used to secure property for profit with little or no outlay.
Option contracts have long been used by Developers to secure potential development opportunities. They allow the developer to exclusively hold the property while they have the local authority approve the development application.
An options contract can give the developer the right but not the obligation to purchase a property. They pay an option fee to the vendor in exchange for this right.
When the option contract expires the developer either, buys the property and proceeds with the development, or, passes the property back to the vendor. Yes, it costs the developer a small fee to secure the opportunity (often 1% or more of the total asking price), but it is a small amount if the development cannot proceed or is not profitable. This way the developer limits their risk.
Property investors can secure a property in the similar way that developers do, like the example above, using a variation of the option contract. This type of option contract allows the investor to secure a property with a negotiated deposit and assign it to another purchaser if required without having to purchase the property first.
A property is secured by an option contract with a term of 2-6 months, sometimes more. The investor can then add value to the property before reselling it for an increased price with little or no closing costs.
Here are a few ways they are used to secure property and create profit;
1. An older property is secured with an option contract. The agreement also provides for access by the investor to renovate. Once the renovation is completed the property is marketed at a higher price, before the option contract expires.
The investor then assigns the contract to the new purchaser and the sale then becomes a contract between the original vendor and the new purchaser.
2. An option contract is used to secure an off-the-plan property, with a 12?18 month completion date.
In this situation the vendor agrees to allow the investor the option to buy or on-sell the property. The investor may purchase a number of apartments at a reduced price, when it is nearing completion, the property is sold at the original or a higher price. Providing the market has moved up during the time to completion a reasonable profit is made.
Additionally, the fixtures and fittings can be upgraded to provide even greater value.
3. An option contract can be used as a method of providing 100% finance. The property is secured on a long term option contract, 12 months or more for a set price.
Rising values in a fast growing real estate market ensure that by the time the option contract expires the value of the property has gone up sufficiently to ensure that there is enough equity in the property to cover the deposit. An option contract can provide some attractive investment strategies for property investors wishing to maximize their returns. In all cases the option contract provides security for the vendor and opportunity for the property investor.
See an Option Contract sample option contract (an alternative to the lease/purchase arrangement used in the USA) on the Property Investors Association of Australia web site.
This article may be reproduced in its entirety provided the resource box below is included as part of the article.
John Moore is a Prosperity Coach specializing in Property and Business coaching. He has helped many people create wealth in their lives and is President of the Property Investors Association of Australia Inc. http://www.piaa.asn.au/ an organisation dedicated to providing news, information and resources to Property Investors.
Is there a perpetual shadow hovering over your house? Do... Read More
Bulgaria is a truly magnificent country, located in Eastern Europe... Read More
If you want to buy a house but don't think... Read More
Building a house (or lots of them) seems to be... Read More
Analyzing and finding the right property deals:Firstly read my other... Read More
If you're looking to get started investing in real estate... Read More
Real Estate Agents play an essential, critical role in the... Read More
Selling quickly is a high priority for some home sellers.... Read More
There are three investment vehicles which can make you rich.... Read More
New concepts in Interior Design Psychology are helping home sellers... Read More
With a job that paid $3.40 an hour, I saved... Read More
Here below are some of the reasons why buyers may... Read More
Moving from one house to another is always a challenge,... Read More
Money in escrow is "dead money". It doesn't earn interest... Read More
So, it's home hunting time. Where do you start? Who... Read More
It doesn't take long to realize that finding the right... Read More
If there's one thing American investors love, it's an over-inflated... Read More
For single family homes, there are two basic methods used... Read More
Here to stay and firmly established in the U.S. mortgage... Read More
Buying Your First HomeBuying Your Own Home isn't nearly as... Read More
Property Investing Secrets:How To Work With Agents And Get What... Read More
If you are making the transition from renter to homeowner,... Read More
The longer you are a landlord the more you strive... Read More
When looking for a home, it is important to first... Read More
There are a great many books and web sites devoted... Read More
Home buyers and sellers should think twice before jumping into... Read More
The Echo Boomers or Generation Y currently make up about... Read More
Everyone has heard a story or read about someone who... Read More
As a Professional Real Estate Inspector I get to see... Read More
Sheriff's Deputy Ted Rasmussen was thinking about Carrie-his pregnant waitress... Read More
People sometimes confuse a home inspection and an appraisal when... Read More
Second homes in favourite holiday destinations such as Spain are... Read More
Although architectural details, wall and floor coverings, modern conveniences and... Read More
I'm often asked about the basics of Design Psychology, which... Read More
There are several small businesses that retain hundred year old... Read More
Looking to quickly build a million pound property portfolio? You... Read More
Most consumers are told where to get their mortgage because... Read More
Are you thinking about selling your home? Would you like... Read More
Why without asking your boss? Two reasons, one, he or... Read More
BuyersLooking for a home-Use Internet for overview of properties, communities,... Read More
As sure as the spring flows at The Fountain of... Read More
Want to see a trick every real estate investor will... Read More
Owning a house is part of the American Dream. Depending... Read More
First impressions do make a difference when selling your home.... Read More
Real estate agents are gearing up to face the biggest... Read More
Many people buy a house then have to move within... Read More
New Marketing and Design Psychology ideas help you stage homes... Read More
The CompromisThis document is the document you will sign agreeing... Read More
Buy an on-line Tenancy Agreement now. As a landlord and... Read More
Discover new interior Design Psychology strategies to increase your real... Read More
As you grow older, the issue of wealth building comes... Read More
In medicine, a placebo is a pill that you think... Read More
Over the years several of our clients have had professional... Read More
When you are considering purchasing a property; either for investment... Read More
1. Make sure units are larger than 1800 square feet.This... Read More
Awaken to the sounds of softly rustling trees and tranquil... Read More
Homeowners who are seeking a property appraiser often ask "How... Read More
Most people who complete a self build will go on... Read More
Cheap, Bargain, Real Estate; Good Deals, Below Market, Low Priced... Read More
As you are making your cold calls on property, you... Read More
Besides the emotional upheaval of uprooting from your home, your... Read More
There was a time when every conversation was focussed on... Read More
If you are considering getting involved in investment real estate,... Read More
Even in this hot real estate market, selling your home... Read More
It might not seem necessary to involve a real estate... Read More
With new destinations such as Bulgaria, Slovenia and Croatia offering... Read More
Real Estate |