What is a real estate option agreement?  A real estate option agreement is a written contract between two parties, the “Optionor” (seller) and the “Optionee” (buyer) in which one party purchases the right to have the first chance of buying a piece of property at a specific price at some point in the future.  The buyer has the option, but not an obligation, to purchase that piece of property.  On the other hand, the seller is obligated.  Because this is a unilateral agreement the seller must sell the property to the buyer, whom they have entered into an option contract with.  This is a legally binding agreement, as long as the proper information is in the contract.  Before using this type of contract, an investor must consult with an attorney.

A real estate option agreement can be a valuable tool when purchasing Arizona investment property, as long as it is done correctly.  This agreement gives you equitable interest.  You have a legal interest as a buyer, which gives an investor the ability to market the property for resale (much like a licensed real estate agent).  If an investor comes across a potentially profitable opportunity, then that investor can apply a real estate option agreement with the seller of the property.  That will allow the investor to lock up the property.  Think of it as putting the property on lay away.  That investor will now have the ability to execute the option to purchase the property for the agreed upon price, whether the investor is buying the property or selling the option to another investor.   It is always important for the investor to be honest with the seller and disclose what their strategy for the property is.

Example:

Creativity in buying Arizona investment property

A distressed seller has a property listed for $150,000.  An investor sees the property and agrees on an option price of $150,000; however the actual market value of the property is $175,000 (seller discounted the property in an attempt to sell quickly).  The investor sells the option to another investor for $165,000.  The original investor pays the seller the $150,000 and makes a profit of $15,000 without having to ever put up any money (or very little) of their own.

This market requires investors to get creative when building their real estate portfolio.  The real estate option agreement can be another create tool in the investors tool belt.  The three key pieces of information to take away from this post dealing with option agreements are option is not an obligation to buy, seek legal counsel before using the option contract, and be honest with the seller when dealing in real estate option contracts.  Learn other ways on how to get creative when buying Arizona investment property.