REAL ESTATE OPTIONS BASIC INFORMATION AND TUTORIALS

Real estate options are a little known and seldom used investment strategy probably because the only time that most people ever read or hear anything about real estate options is when they are bandied about, willy-nilly, on real estate web site message boards or discussed at real estate investment club meetings by people
whose collective knowledge of the subject would not fill a thimble.

However, when fully understood, properly prepared, and used correctly, real estate options are an excellent way to conserve capital, create leverage, reduce risks, and gain control of properties with immediate resale profit potential. But, to avoid the potential problems and pitfalls that plague most uninformed and unsuspecting real estate option investors, you first need to know:

1. The difference between a straight or naked real estate option and a leaseoption.
2. What a real estate option is.
3. The seven elements of a real estate option transaction.
4. How a real estate option transaction works.
5. The legal status of real estate options in your state.

The Difference between a Straight
Real Estate Option and a Lease-Option
First things first: There is a world of difference between the straight or naked real estate options that I am writing about in this book and the rather ubiquitous lease-options that everyone and their brother has written about over the past 10 years. For starters, the real estate option agreement that I am writing about is a stand-alone document, which is not part of a lease agreement.

Second, under the terms of a lease-option agreement, the lessee-optionee takes possession of the
property under lease and is legally obligated to pay a monthly lease payment. The only payment required on a real estate option is a one-time option consideration fee. And unlike real estate options, lease-options violate the loan due-on-sale clause contained in residential mortgage or deed of trust loans.

In other words, in the event that a lender discovers that a property owner has entered into a lease option agreement, the lender could call the mortgage or deed of trust loan due and foreclose if the loan was not paid off in full.

Often, people confuse a real estate option with a right of first refusal. The main difference between a straight or naked real estate option and a right of first refusal is that a right of first refusal is the right to match a bonafide purchase offer from a third party, whereas a real estate option is an irrevocable right to purchase property, usually at a pre-determined price, within a specified time period.

For example, most commercial leases include a right of first refusal that gives the lessee the right to match any written offers that the owner may receive to purchase the property under lease.


The Definition of a Real Estate Option
In general legal terms, a real estate option grants the party owning the option, the optionee, the exclusive, \ unrestricted, and irrevocable right to purchase property from the party selling the option, the optionor, during the specified period of time that the real estate option is in effect.