Real Estate Professional · Shalimar, FL · Member since 2009 · 117 posts · 6 votes
I'm trying to tie up a property long enough to either find private money, so I can close myself, or quick resell to an end buyer.
What are the advantages and disadvantages with tieing up properties using either an "Option" or a "Purchase and Sale Agreement". I know you are not actually obligaged to purchase the property, if you use an Option, but do sellers back-track when you present them with an Option?
How long do you try to tie it up with an Option?
If you use a "Purchase and Sale Agreement", how for out do you say you'll close? Do you the typical weisal clauses (property or title inspection, partner approval, etc)?
Good questions Lynn. I'll take them one at a time. My rehab company utilizes both options and purchase agreements. I think of them more as chess pieces. One is not necessarily "better" than the other. It is important to know how they work and what their benefits/drawbacks are, then use them strategically when the circumstances are right.
Sure sellers balk at Options, for a number of reasons. For one, they are a little unusual. Also, typically the seller wants to SELL... not give you a fantastic price and exclusive right to buy it. But, that doesn't mean options will never work. We do them frequently.
Usually the option period is 30 days. Might be longer if there is some circumstance requiring it. We typically don't need that long to figure out what we're going to do with it. I'm more likely to do an option if a seller wants to get an agreement right away, before I can do my due diligence.
We use purchase agreements far more often. The level of "outs" we leave ourselves, again, depends on the circumstances. Institutional sellers (HUD, banks, etc.) are unlikely to do options at all and are hip to the "weasel clauses" you suggested. In my experience, they won't accept that kind of offer. Private sellers are all over the map.
So... to answer all of your questions in two words: It depends.
Good questions Lynn. I'll take them one at a time. My rehab company utilizes both options and purchase agreements. I think of them more as chess pieces. One is not necessarily "better" than the other. It is important to know how they work and what their benefits/drawbacks are, then use them strategically when the circumstances are right.
Sure sellers balk at Options, for a number of reasons. For one, they are a little unusual. Also, typically the seller wants to SELL... not give you a fantastic price and exclusive right to buy it. But, that doesn't mean options will never work. We do them frequently.
Usually the option period is 30 days. Might be longer if there is some circumstance requiring it. We typically don't need that long to figure out what we're going to do with it. I'm more likely to do an option if a seller wants to get an agreement right away, before I can do my due diligence.
We use purchase agreements far more often. The level of "outs" we leave ourselves, again, depends on the circumstances. Institutional sellers (HUD, banks, etc.) are unlikely to do options at all and are hip to the "weasel clauses" you suggested. In my experience, they won't accept that kind of offer. Private sellers are all over the map.
So... to answer all of your questions in two words: It depends.
I will tell you that in my opinion your offer gets much more consideration and taken with more seriousness if you do a purchase agreement without the lease/option route. I get about 20 lease option requests for every 1 purchase offer I get, and while I can appreciate people trying to make the offer on a lease/option route it just seems as though these offers are amateur to me. I only say this with a suggestion. Build rapport with the seller and learn their circumstance before you jump into asking about a lease/option sale. You will increase your likelihood for success by doing so.
I actually have a couple of possible transactions in the works, but I'll need funds for both of them, thus the reason for either an Option, or an extended closing date.
Both I want to quick resell, but ofcourse, I don't know how long that will take. Both are residentual lots within the city limits, and I've had a Realtor CMA on both.
#1 - $36k value I can tie up for $20k. Quick-resell price of $30k.
#2 - $12k value I can tie up for $2k. Quick-resell price of $9-10k.
do you have a built buyer list for lots? Land is a different sale than SF homes, and usually involves a different buyers list. I would suggest making sure your builders list will warrant action on lots. I also would question the quick re-sale price. I am not saying you can't make between 50-500% on these two deals, but make sure you are pricing them to move over getting the best profit. If you move two deals in 30 days that produce $5K of profit, and you move 1 deal in 90 days that produces $10K of profit, what is the best use of your money, and the best value for your end buyer. Just my 2 cents.
I'm going to present the owners with an Option, and see what happens. I can always say that my builders need the price locked in before they can proceed. If it falls thru, then there's nothing gained, and very little lost.