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What is a real estate option? A real estate option is a unilateral agreement: Between an optionor (The Seller) and an optionee (The Buyer, for the rest of this article I will refer to them only as the Buyer and Seller) Binding only on the Seller Where the exclusive, unrestricted, and irrevocable option to purchase is exchanged with the Buyer for valuable consideration The purchase of the option does not impose any obligation upon the Buyer to exercise the option and or purchase the property However, the Seller is bound by the agreement to sell the property at the agreed price to the Buyer should the Buyer choose to purchase the property within the option time period The elements that must be spelled out in an option agreement are: * Price (consideration) to be paid for the option * Time--when will the option start and when will it expire * Strike Price--the mutually agreed purchase price or property during the option period * Other terms and conditions of the option agreement Is a real estate option the same as a Lease Option? Yes and No! The option part of a lease option agreement could be exactly the same as the option agreement we are discussing but the lease option includes a lease for the property. I thought real estate options were illegal! Real Estate Options of some kind are legal in most free countries in the world. It is the lease part that may cause some legal problems in certain American States. In order to avoid any problems, be sure to consult with a real estate attorney before entering into any real estate agreement. What are the steps in a real estate option transaction? Here is a step by step overview of an option transaction:

1. The Buyer and the Seller enter into an agreement And the Buyer pays an option consideration to the Seller The Seller grants the Buyer The exclusive, unrestricted, and irrevocable option to purchase property at a fixed purchase price during a specified period of time 2. The Buyer either Sets up a closing and purchases the real estate during the option period Sells the option to another investor or Lets the option expire by not purchasing the property during the option period How are options used to purchase real estate at discounted prices? Investors may use options to gain control of a property for short time. During that time, the investor can seek out another buyer to sell to for a higher price than the option amount. The profit is the amount of difference in the amount of the option and the sale price. But a more creative use of an option would be to locate a seller having a hard time selling their property. Then convince that seller to sell you an option to purchase but with the right to sublease it immediately. The investor may then rent out the property on a rent to own agreement. This will allow the investor to generate some income while helping their renter get into the position to purchase the property from them at a substantial profit. Options are a great way to tie up property for a small amount of money. Some of the benefits of using options to purchase property are: Saving the closing costs of purchasing and selling the property Saving the holding costs involved in purchasing a property Saving the maintenance and many other holding costs of owning a property Saving time by avoiding the loan process--setting up and going to closings Putting time to use on more productive efforts like finding more options One other thing to keep in mind is that a real estate option will expire when a Buyer fails to exercise the real estate option within the option period of the agreement. At that point the Buyer will not only lose their control of the property but also their original option payment.

About the Author

Dennis Henson is a full time Real Estate investor and internet marketer in Arlington, Texas.

The president of Vanguard Marketing and Investments, Inc. and "AREA" Arlington Real Estate Association of Investors, Dennis is an eloquent speaker and has written many articles on real estate investing. He is also the inventor of "Turbo-Bidder" Real Estate Investing software.

In 1971 he purchased his first investment property in Adarisvi