Purchase Option

7 Replies

I have read somewhere (and after a full afternoon of searching, can't find where) that you can negotiate a deal with a Purchase Option contract. Basically, you sign a contract that will give you the option to buy a property for $x in the next y days. It is usually non-exclusive.

You then do some marketing yourself on the property, find a buyer willing to pay $x + $z for the property and assign him the purchase option contract for $z - $x in consideration to you. So he pays you $z - $x and buys the property himself for $x. Does that make sense?

Is this possible? Has anyone done this? Can anyone point me towards contract documents that deal with this? Most of the options I've seen deal with leases.

You've got the right idea, but your algebra could use a little work.

You then do some marketing yourself on the property, find a buyer willing to pay $x + $z for the property and assign him the purchase option contract for $z - $x in consideration to you. So he pays you $z - $x and buys the property himself for $x. Does that make sense?

No, it doesn't make sense. You find a buyer willing to pay x + z. You assign your buyer the contract and he pays you z. He then pays the original seller x for the property. Much simpler.

When you pay someone for an option, it is exclusive. You are the only one that can buy the property in the next y days. (all these letters are making my head hurt!)

Mike

Right. That's what I meant! :lol: Thanks for trudging through that and sorting everything out. It was making my head hurt, too.

So have you ever done one? Do you have a contract example or know where I could find one?

hydromint,

I have not assigned an option. Buying pure options is usually done when the investor can't afford to close if their buyer falls through. I'm not in that situation. I have flipped (assigned) a couple of purchase contracts and I have both "bought" and "sold" using lease options.

Assigning an option is a valid technique, just realize that you'll lose your option premium if you don't get it sold.

Mike

I still don't understand how you can sell something you don't own. So, if you have an option to buy and you assign that option (or re-sell it) but for some reason you can't get ownership, that third party you were going to sell to could take legal action against you? Help.

ctrentalbuy,

An option gives you the legal right to purchase a property for a given price (or formula for price) for a given period of time. When you buy an option, you are paying money for these rights. From a legal standpoint, the owner must sell to you if you exercise your option during the term of the option.

When you sell (assign) the option to another buyer, he then gains the right to buy the property just as you did. If you are assigning an option, you never own the property, only the option to buy it. The person you assign the option to will be the one actually buying the property.

Mike

MikeOH

Thanks so much for your help so far. Do you know where I could find an example purchase option contract? Is it two seperate contracts: one purchase agreement and one option to exercise that agreement? Or is it just one?

I am currently talking to ~3 different owners and I think that this kind of contract may be the ticket to my first deal...

Mine are 3 seperate contracts (I use a disclosure to cancel in 3 days for no reason at all). I simply get the owners permission to go to work with the option, then if/when I find a buyer, I lock it up for 30 days with a purchase contract. If not, the home never came off the market, so I dont owe anyone anything.

For wholesales, Ill take half of investors earnest money, and give half to the seller, to take it off the market. Of course its non refundable, so you are still making something if the deal completely falls through. The option is a nonexclusive option, or open option, yes. It basically solves all your problems of "will I find a buyer or not". I wont pull them until I have a buyer, and even then, Im still not responsible for anything. You still have to negotiate a rock bottom price on the house, or no rehabber will touch it, so that part still exists.

P.S Hydromint - I like the clean design of your work. Very nice. I took a crack at php and css a few years back. So much for that..... :D