In its simplest form, a option agreement gives you the right to purchase a property at a set price in an agreed period of time. If done correctly, they will give you the right to buy the property, but you will not be obligated to buy the property.
In return for the seller giving you the option to buy the property, you will normally need to cross their palms with silver (give them some money). If you are an excellent negotiator, the amount you give them can be as little as £1 – yep you read right – £1. But this is wholly dependent on the vendor’s situation and why they need to sell, and your negotiation skills.
Sometimes you might have to part with a few hundred or even a few thousand pounds if you want to have the option for a few months.
The art is in understanding the vendor and being able to give them what they want (and it isn’t always money in their pocket today).
How to Make Money with a Property Option Agreement
There are many situations where a property option agreement can be used. One might be if the owner has had problems selling the property for say £110,000 and you come along and you want to buy it and you are prepared to pay the £110,000 because you think that you can extend it and add value to it to make it worth £170,000.
If you place a 4 month option on it you can make some enquires and make sure you are going to be able to get the relevant planning permission before you purchase the property fully.
The other great thing about setting up an option agreement is that on top of having exclusive rights to buy the property in the allotted period of time, if you arrange it so that the agreement is transferable, you can sell your option on to someone else and they complete the purchase.
This is another good way to earn money from property without ever owning it. By using the option agreement you basically control the asset and have the right to buy it in the given time but because you have it set up so that you can sell the option on you never have to really own it.
You can sell the option on to a buyer who also sees the potential in the property and that it is worth a lot more than the £110,000 (or who you have shown the potential because you now have planning permission, or for some other reason), and you can make a tidy profit.
Used properly – options agreements can be one of the most valuable tools in the tool kit of the professional property investor.**Nothing on this website should be confused with financial or legal advice. If you need this, or any other type of advice, please seek the help of a competent professional. In addition, because real estate laws change all the time and differ from state to state, and even city to city in the same state, everything in these pages should be considered general marketing advice and ideas. Please see link to full Disclaimer at the bottom of this page.