Option Deal

Has anyone heard of or completed an option deal?

A gentleman in my local REI club talked about this last night.

He had a deal where a motivated seller built 9 condos but overextended himself so he needed to get out.

Here are the numbers he said he made.

ARV - $140,000 per condo
Strike Price - $104,000 per condo
Option fee - $10 per condo
Repairs - $0
Sale Price - $115,000 per condo

So, he made $11,000 per condo, $99,000 total.

Unlike a lease option, the option deal gives you the right to buy with no obligation.

Most purchases are set up this way. It’s pretty standard practice, at least in my area.

You find a property you like, you put down an option fee ($75 is typical in my area) and earnest money. The option period is typically 10 days and usually pending inspection of the property by a licensed inspector. If you don’t like the outcome of the inspection you exercise your option and get out of the contract. You retain your earnest money but forfeit your option fee. The only difference in this scenario is that he’s wholesaling it to investors during his option period.

It’s not an entirely different concept than a Lease Option, just the ‘option period’ is much shorter. Less time, is less risk which in turn means the seller can afford less reward ($75 instead of say $5000 for the option fee on a Lease Option). The concept is very similar it’s just the time frame that is different.

The option deal in all contracts gives you the option to exercise it or not. The only obligation is the option fee you pay (you lose that if you chose not to exercise the option).