Want to put something under option...

If you want to put something under option, do you typically approach the property owner as if you’re planning on buying it? And after discussions tell the owner you’d like to put this particular property under option?

How do you approach it?

Thanks.

This is how I do it. Let’s say the property is a home worth $100,000. The owner wants to dump it fast for $75,000. I tell him I’ll give him $2000 right now for a 60 day option on the property, the money is his, not a deposit, not a loan, HIS. The option gets written for the $75,000. Put an ad in the paper that say’s. Handyman’s special, must close in 45 days best offer over $80,000. Put the general location in the paper. People are very in tune with prices in all types of neighborhoods. They’ll know how low it is. Have a 2 day open house Saturday and Sunday. Take the best offer from the person with REAL MONEY! Even at $80,000 you make $3000 on a $2000 investment in 45 days. I usually do better than that.

Thanks for your replies. I appreciate your insights.

It’s interesting though to note, that one replier gives the owner “$5 or $10” and one reply, said they gave “$2000”.

Would anyone like to comment on the discrepancy? Why would someone give $2000 if they can just give $10 instead?

Sometimes I wonder if some people on the Forum, have actually done these things or if they are talking “in theory” (from a book) that this is the way it ‘should’ work.

To the $2000 replier, I’d like to ask, you have an open house. Should I assumed the property is vacant? Or is the owner living there?

When I’ve read about showing optioned houses, I seem to never read if the owner is occupying or not. If I was a FSBO and I entered into a 60 day option, I sure wouldn’t move out until I knew my house was sold.

I enjoy some comments/feedback. Thanks.

The houses I have done this with have been vacant. If their living in it, it would be the same process. They would not be there during the open house. Remember the people your dealing with in these situations DO NOT want to go through a realtor. I have no idea why. But think about it. A realtor is taking 6% IF they sell the house. Your GIVING them a few thousand dollars up front to try to get more than they want for the house. As for the $10 options. COME ON would you take $10 from someone for an option on a car? never mind real estate. Come on! It’s bull----, I have done this . It works, Under the right situation. Your not going to quit your job and do this for a living. It’s a tool in a toolbox. You can use it on certain things.

I wanted to add something else to my last post. The homes I option usually come from ads I run in local papers looking for houses that need work. It’s my experience that Handyman specials always sell. Remember you make your money when you buy them or set the option price. I always leave some money on the table for the next guy. It ensures a quick sale. I use the options when I have to play tight on the purchase price. I would rather lose the $2000 in 45 days than marry a pig that I have to make payments on while doing a major rehab.

Thanks alot for your reply and your insight. I greatly apprecaite it.

It makes sense that a person who doesn’t want to pay 6% to a realtor, will be happy to take your $2000. But isn’t he losing just as much as the 6%, because you’re buying it at a discounted price from him?

How often do you “$2000 in 45 days”?
Also, would you mind telling me what state you’re in? just curious.

Thanks again. I look forward to your reply.

You are right as far as the owners not getting the most they could out of these deals. Rememeber, these homes are always old, need work, and various repairs. Now think about how a realtor would look at this type of home. They pull the comps for the neighborhood and price it $3000 under. The owner endures 10 open houses, 8 people want it inspected by a home inspector, the septic system is a cess pool, you get the picture. When these people decide it’s time to move to Florida they want to go NOW!!! I’m in the Northeast. I’m being a little protective here. I’ve done this about 8 times in the last 4 years. I usually just buy, fix and sell. It’s a great way to get started, it’s THE way I got into this business. Very little risk to you and your family.(is $2000 going to bankrupt you?) I just completed one of these this week.

The deal this week went like this. Owner has a home he wants $135,000 for. It needs carpeting throughout and a heating system. Now in case you don’t know a first time home buyer will not be able to get a bank mortgage on this house because of the lack of carpeting and the old 1st floor only heating system. BOOM! that’s why I got this deal. He didn’t want to spend any money, wanted out yesterday, I gave him $2000 for a 60 day option at $135,000 put it in the paper for best offer over $130,000 (low prices always gets the ball rolling) sold it that weekend for $148,000. Turned $2000 into $13000 in 45 days! It’s real and you can do it. Don’t be afraid to try and don’t let nit wits who have never doen anything but read books about it tell you it can’t be done.

how are u getting on title to get ur $ ?

A copy of the option agreement is recorded at the city hall where the property is located.

Tony, I also have the buyer sign a transfer of option agreement. This is done before the closing and states the amount owed to me for the option and when it will be paid. ie. at the closing. Remember the closing takes place BEFORE my option expires. I always have a few buyers to choose from and if anyone tries to play games I can always close on the home myself or sell it to one of the other bidders. All of the above is spelled out in the purchase and sales agreement, which my lawyer drafts.
A little money spent for good legal advice and protection is priceless.

what is ur profit off this sale?

people that don’t want to sell thru a realtor usually cannot, maybe due to little or no equity, have to move NOW, job transfer etc…u know, the usual motivated seller, for whatever reason. in the right situation, a motivated seller will take $10 to be rid of a burden called a mortgage. mainly that is what we see. occasionally it happens with free and clear properties, or those with a fair or huge amount of equity but it’s not the norm.

$13,000 for a $2000 option in 2 weeks.

Tony, I can see how people could go for the $10 if they have very little equity. I just never deal with those properties. Too much time and not a lot of results. But I do agree with you.

how do u find these people with a lot of equity and then get them to sell to you way below market value?

I let people know I’m looking for them. And I pay them a finders fee if they bring one in. It sounds simple but over many years you build up a network. This house needed a heating system and the owner wanted out and did not want to do ANYTHING including cleaning it. I spent a day with a crew and we got everything out of the house and into the garage so it could be shown.

so are u on the hud-1? or just paid becuz the agreement is recorded?

Because it’s on the agreement. I don’t use this all the time. Just in certain situations were I don’t want to gamble on a tight profit. The people who buy are always investors and I always tell them I will add them to my list. Next time I get something I’ll call. I could definitely get cut out of a deal, but I always remind them, nicely, that I will tie them up in court if they plan on playing games. Most of the time their flipping these houses and just the thought of a potential title/lein problem is not what they want to hear.

so how do u get ur $13k paycheck on this one?