OPTIONS: The Most Useful Real Estate Investor Tool
by Jackie Lange Posted 06/14/2013
Many readers of this blog may not be able to use either seller financing or investor financing to buy houses because of lack of investors or sellers who would be willing to provide financing. But, by using Options, they can buy, sell, and hold houses without the cooperation of either investors or sellers.
In virtually every market, Options can be used to
create very high yields primarily because they can be obtained for about 1% -
3% of a propertyís value. They can share both in future appreciation and loan
amortization. Options are perfect investments for Pension Plans or IRAs because
of their high leverage and risk/reward ratios. Or, they can be sold immediately
to provide current cash flow; or held for 12 months, then exchanged tax-free
for other Options or for real estate. When you consider all the ways Options
can be used, it stirs the creative juices.
Suppose you sold a house by buying an Option to provide the down payment. Later you could sell the Option for cash, or exchange it for a share of the equity on the same house you sold, or another house. By doing this, youíll have helped the buyer buy a house with nothing down; so it would not be unfair for the person who bought the Option to be able to cancel it in return for half interest in the house. Think of the opportunity for investors, brokers, CPAs, attorneys, financial advisors, IRAs, etc. to be able to build future equity starting with todayís extremely low prices without any cash investment other than the funds, or services, they contributed for the Option. Letís take this a little further:
The highest paid skill in real estate today is to discover and tie up property at a bargain price; thus earning either a fee or share in future profit. By combing neighborhoods and the Internet to find owners willing to walk away from their equities with a Short Sale contract, a lot of money can be made. A few weeks ago, I entered into a Short Sale contract with a seller for half of the MLS listed price. I met him at his garage sale. Unable to sell, he was cleaning out his house and leaving the State. If the Short Sale is approved, I can wholesale my position to an investor before I have to pay anything. Or, I might sell for my actual cost and retain an Option to buy one half of the house back for one half of the cash paid.
By using Option techniques, you wonít need to go into
debt to make money with houses. Hereís how: using investor cash, for finding
and buying a house at a big discount to value, doing any necessary repairs and
either reselling or renting it, in lieu of a fee you should demand half of all profit.
One person has been doing this for years; steadily building net worth without
using any of his cash at all.
There are a lot of websites out there maintained by mortgage lenders, mobile home lenders, HUD, FNMA, Freddie Mac, and Auctioneers that are loaded with billions of dollars of unsold and foreclosed inventory that can be contracted for with very little cash. Up to $35,000 in FHA 203K loans are available for houses that need rehab. Some sites show opening bids and prices; all of which can be severely discounted for cash. Some of these websites are easily found, and some less well- known web address are closely guarded secrets. Nonetheless, diligent entrepreneurs have found these sites and are making a lot of money by contracting to buy houses they list, then getting cash investors to split the profit with them. If you arenít investing almost every waking hour finding ways to take advantage of todayís market, youíll have missed one of the greatest opportunities of a lifetime.