REAL ESTATE OPTIONS:
What They Are And How They Work
COPYRIGHT 1999-2014 Landlord.com
Over the years, a lot of myths, lies and
fairytales have been told about real estate
options at so-called real estate investment
conventions by ignorant hucksters whose
collective knowledge on the subject wouldn’t
fill a thimble! As a result, there’s much
confusion about what exactly straight real
estate options are, how they work and when
to use them. However, when fully understood,
properly prepared, and correctly used,
straight real estate options are an
excellent way to create leverage, reduce
risk and conserve capital while holding the
controlling interest in undervalued
properties. In no other single aspect of
real estate investing is specialized
knowledge so richly rewarded than when using
real estate options to control undervalued
properties with immediate resale profit
potential. But, if you decide to “play
around” with straight real estate options
without really knowing what you're doing,
you'll be harshly punished for your
ignorance and lose a lot of money.
What You Need To Know About Straight Real Estate Options
In order to avoid the potential caveats and pitfalls that plague most
uninformed and unsuspecting real estate option investors, you need to know:
1. The difference between a “straight” real estate option and a
“genuine” lease option.
2. What a straight real estate option is.
3. The seven elements of a straight real estate option transaction.
4. How a straight real estate option transaction works.
5. The essential elements of a valid real estate option agreement.
6. The legal status of straight real estate options in your state.
A Straight Real Estate Option Agreement
In general legal terms, a “straight” real estate option agreement is a
unilateral agreement, binding only on the optionor, the seller, in which a
promise, the exclusive, unrestricted and irrevocable right and option to
purchase is exchanged for performance, the exercising of the option by the
optionee, the buyer. The purchase of a straight real estate option doesn't
impose any obligation upon the optionee to exercise the option and purchase the
property. However, once the optionee exercises the straight real estate option,
the agreement becomes a bilateral contract, binding on both parties, at which
time the optionee becomes the buyer, and the optionor the seller. For example,
in Florida, a straight real estate option agreement is distinguished from a
purchase agreement in that no equitable interest passes to the optionee until
the real estate option is exercised. Once exercised, the straight real estate
option agreement “ripens” into a bilateral purchase agreement.
Seven Key Elements Of A Straight Real Estate Option Transaction
A straight real estate option transaction is comprised of the following
seven key elements:
1. Optionee: Optionee is the name given to the party buying a straight
real estate option. Once a real estate option is exercised, the optionee becomes
2. Optionor: Optionor is the name given to the party selling a straight
real estate option. Once a real estate option is exercised, the optionor becomes
3. Straight real estate option: When an optionee buys a straight real
estate option, he or she buys an exclusive, unrestricted and irrevocable right
and option to purchase a property at a fixed purchase price within a specified
4. Option consideration: Option consideration is the amount of money paid
by an optionee to buy a straight real estate option from an optionor.
5. Option period: The option period is the specific period of time stated
in the straight real estate option agreement in which the option is in effect.
6. Exercise of option: The exercising of a straight real estate option
occurs when the optionee notifies the optionor, in writing, that he or she is
going to exercise their real estate option and purchase the property under
7. Expiration of option: A straight real estate option expires when an
optionee fails to exercise his or her real estate option within the option
period stated in the real estate option agreement.
How A Straight Real Estate Option Transaction Works
Here's a sequential outline of the mechanics of how a “straight” real
estate option transaction works:
Step #1: Optionee pays real estate option consideration to optionor.
Step #2: Optionor grants optionee the exclusive, unrestricted and
irrevocable right and option to purchase property at a fixed purchase price
during the option period by executing a straight real estate option agreement
Step #3: Optionee exercises his or her real estate option, or lets it
Step #4: Once exercised, a straight real estate option agreement turns
into a bilateral agreement in which optionee becomes buyer and optionor seller.
Step #5: Buyer and seller execute a detailed purchase agreement.
Step #6: Seller transfers property’s title to buyer at closing.
Why I Like Using Straight Real Estate Options To Control Undervalued
My basic real estate investment philosophy of only buying financially and
physically distressed problem properties hasn't changed one iota since I began
using real estate options to control undervalued properties with immediate
resale profit potential. The only thing that has changed is that I now prefer to
buy real estate options instead of properties. That’s because since I've made
the switch from buyer to real estate optionee, my resale profits are no longer
being eaten up by transaction, maintenance, management, debt service and other
holding costs that go along with outright property ownership. I can now fully
1. Finding undervalued properties with immediate resale profit potential
to buy real estate options on.
2. Performing due diligence on potential option properties.
3. Negotiating low-cost straight real estate option fees and below market
4. Expanding my network of qualified real estate option buyers worldwide.
5. Marketing properties worldwide via the Internet that I own real estate
6. Selling my real estate options for maximum profit.
Thomas J. Lucier is the President and CEO of Home Equities Corp, a
privately held Florida Corporation established in 1995, that specializes in the
purchase, fast-turnaround and resale of small residential rental properties in
the Tampa Bay Area. Tom’s one-of-a-kind 78 page special report,
To Use Real Estate Options To Control Undervalued Property, $29.95,
is available for purchase at the Landlord.com FIND FORMS & PUBS .