Finding Success In Paper Real Estate: Options

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REAL ESTATE IS A GREAT HOME BUSINESS. Some of my real estate entrepreneurs are so close to their business that they live on the property that gives them their income! Could you ask for any closer ties? (These wealth builders live in one of the apartments of their multifamily income buildings.)  

Choose How You Want to Prosper in Real Estate

You can earn money in home-based real estate in two general ways.  

1. Invest small sums in “paper” real estate—that is, options that allow you to control large pieces of real estate for a tiny amount of money. Your income comes from the difference between the cost of the property and the selling price you can get for it.  

2. Buy, and own, income property of a type you feel comfortable with—such as residential (apartment houses), commercial (stores), industrial (factories), etc. Your income is derived from the rents you are paid, after you deduct the operating expenses.  

Let’s take a look at each type of real estate and see how you can earn money from it. And—if you’d like—you can run both types of businesses from your home and earn an excellent income.  

How Options Can Help You Build Your Fortune

An option is a written agreement you have with the seller of a property to buy it at a stated price within a named time period—which could be thirty, sixty, or ninety days or more. If you do not buy the property within the option period (i.e., thirty, sixty, ninety days) you lose your option amount. But this amount is so small compared to the value of the property you control, and the profit you might make on its sale, that people shrug it off. For example:  

You find a multi-family building priced at $200,000. An option to buy it costs $100 with a sixty-daytime period. You believe you can resell this property for $250,000 in less than sixty days. With a bit of advertising and a few phone calls you are able to sell the apartment house for $248,000. So your profit after expenses (including your option cost of $100) and closing costs of $11,000 is $248,000 – $11,000 – $200,100 = $36,900.

Thus, for an investment of $100, you earned a profit of $36,900. And even if your option cost you $1,000 (which it probably would not), you’d still have a nice profit for a few days’ work. Further, if you were unable to sell the property in sixty days, you would lose only $100 in the first instance, or $1,000 in the second instance.  

All of your dealings with an option can be done from home—except for visiting the property you want to buy.  

Never take an option on real estate without seeing it with your own eyes! You might—if you wish—have a trusted partner or relative check a property for you. But—if you can—you’re much better off checking it out yourself.  

Some options can cost as little as $1. Such options are on property that is not in great demand. So while your option costs you little, the chance of selling the real estate will be smaller (usually) than for properties whose option costs more. (We’ve even heard of options that cost nothing—-just your signature on a piece of paper—but the real estate sold fairly fast.)  

To help you understand options better, you should read the Example of a Typical Real Estate Option shown at the bottom of this post.  

The option shown is a general example of one that might be used for your deals. Since every transaction is different, your proposed option should be tailored to your specific deal; don’t use this option without the guidance of a competent real estate attorney, who will prepare your option for you.  

What will be your game plan for making money from home in real estate options? 

Here’s your ten-step game plan:  

1. Decide what type of property you want to work with—that is, option and then resell either the property or the option itself. 

2. Look for such properties in your area by regularly scanning the ads in your Sunday newspapers, and in any other local real estate publications you can find.  

3. Contact sellers of suitable properties when you find one advertised. It is best to deal directly with a seller, instead of going through a real estate broker who might not approve of your offering an option on a property.  

4. Get full data on the property from the seller. This will be supplied free of charge to you and will include the asking price, amount of down payment, income, expenses, real estate taxes, utility costs (water, sewer, etc.), and other important financial data on the property.  

5. Explore the sales possibilities of the property. Is such property in strong demand in your area? Can you raise the asking price to a level where you can make a profit on this property? A real estate broker can help you answer these questions. (Note: A real estate broker may discourage your buying a property with an option, but the same broker will be happy to work with you on the sale of an optioned property. Why? Because he or she earns a commission on the sale!)  

6. Offer the seller an option to buy the property if the numbers (your cost, potential selling price, and demand) appear to be satisfactory.  

7. Try to pay the least amount for the option and get the longest time—more than thirty days and at least ninety days, if possible—for the option.  

8. Put the property on the market quickly—the same day you and the seller sign the option. Use every means you can to get the property in front of its potential market.  

You want to sell as quickly as possible, even though a quick sale may produce a slightly lower price for the property.  

9. Get competent legal advice every step of the way. Why? Because real estate today has many potential problem areas. Only with an experienced real estate attorney at your side can you avoid the traps that might exist. 

10. Go on to your next option deal. Only by moving ahead can you build a big income from your home in the options field. You can—if you wish—pause and enjoy your profit from your first deal. But the best way to earn a large income in this field is to continue deal after deal! You can earn big money in “paper” real estate from home. Just follow the ten steps outlined above to see what you can achieve without having an office, a large payroll, expensive machines, or any other problem-makers!  

A Real·Life Option Success from Home

To show you how you might make big money in options, here’s a real-life story from one of our IWS newsletter readers:  

“1 took an option on thirty-three single-family homes for 120 days for zero dollars—no money changed hands. The option cost of these homes at the end of the 120 days would be $796,000. If I could not come up with this much I would lose the houses. But by using creative advertising and sales methods I was able to sell fifteen of the houses for $748,000; my cost for these 15 houses was $392,000. 

So my profit, before ad expenses, was $748,000 – $392,000 = $356,000.1 had the buyer pay the closing costs. The other eighteen houses sold for $565,000. My cost for these was $404,000; my profit before expenses was $161,000. So my total profit before minor expenses was $517,000. That’s not bad for just about four months’ work! Even if my expenses ran several thousand dollars (which they didn’t), I’d still have a nice year’s income.” The way this wealth builder accomplished this real-life deal working from his own home (he showed me all the paperwork) was by:  

  • Knowing the area these homes are located in.He carefully studied values and sales in this location for a long time.
  • Offering his buyers good value for the price they paid,making it a win-win sale for the buyers and the seller—plus the issuer of the option.
  • Arranging the financing so the buyers could get mortgages that were affordable and allowed them to earn money from the homes they bought.
  • Holding to his asking priceeven though the buyers tried to “knock him down” in price to get a better deal.

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EXAMPLE OF A TYPICAL REAL ESTATE OPTION

Below is an example of an option to purchase real estate written by a homebased wealth builder. Note: Any proposed option MUST be written by a qualified real estate attorney. Each option must be tailored to fit the parameters of the specific property and proposed transaction. Don’t use this example as-is for any actual real estate transaction.

OPTION TO PURCHASE REAL ESTATE

[Date]

I hereby offer to buy the real estate located at [Address] and described in the attached copies of deed and title, within the next [Number] days, ending on [Date] In the event I do not purchase the above-described real estate within the next [Number] days, this purchase option will expire and any and all rights I have in this Purchase Option will become null and void, and the earnest money of [$ Amount] will be kept by the seller with no possible recourse by myself. 

Signed—Optionee (You)

Date

Signed—Optionor (Seller)

Date

About Ty Hicks

Tyler G. Hicks is the author and publisher of many popular books, courses and articles on small business entrepreneurship and real estate investment. His books have been featured in Business Week, the Washington Post, and the Los Angeles Times.

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