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by: JacquesCoquerel
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A real estate option is best understood by understanding its definition first before inspecting one-by-one its many benefits for the buyer/investor. In simple terms, a real estate option is a right given by a property owner towards the option buyer to buy or not to buy the property for a known amount (strike price) during an agreed period of time - it's a right and not a legal obligation to buy. A property owner for example may sell his property for an option to someone; the option buyer is given the chance to buy the property during the period of the option. The option buyer's hope of making a profit is when the property's value increases during the period of the option.

When you want to decrease risks, generate leverage, and save on cost, a real estate option should come in handy. The lesser downside and the lower than an earnest money option consideration is an advantage of this strategy.

There are other benefits that a real estate option could bring to the buyer like those being mentioned above so that it is best to inspect them one-by-one to really avail its benefits.

The most advantageous benefit of real estate option is the full control over the property by the buyer of an exclusive option. While the option is in effect, you're sure that there will be no other buyer that can lay their hands on the property during the period of the option. Even if you've not fully owned the property yet, you now have full control regarding its availability.

Another benefit of real estate option is the reduction of the risk involved with the changing of the property value when the option matures. If you're the investor or buyer, you reduce your risk of paying bigger money than what the current value of the property during the option maturity. If you think that the price of the option is bigger than the current value of the property at option maturity, you can just refuse to buy the property without any legal consequences on your part. The only money you would be losing is the option consideration.

The third advantage of real estate option is the possibility to create leverage with practically zero cost or only a minimum cost involved. The agreement between you and the property owner could be set to allow you to rent the property to a third party so that you could earn cash flow while the option is in effect. Your monthly obligation to the owner can now be paid by the third party plus you can keep the extra if any.

You could also be saving your capital for the purchase of the property at the end of the option. There are option arrangements called lease-option wherein a portion of your monthly obligation shall go to the purchase price of the property upon maturity. And if you sublease it to someone else, you are building equity with virtually zero cost on your part, thus saving your capital.

Some properties offered for optioning, however, are problematic. The owner could be facing looming foreclosure or government reacquisition so that you could be in big trouble if you signed up for an option with these kinds of property - you could lose your money. A thorough background check, however, should prevent this from occurring.

About the Author

About the author: Jack Cockrel is a real estate investor based in Atlanta, Georgia. He has made more than 750 real estate transactions since 1996. For Real Estate Investing Tips get his free course Real Estate Investing Free Course.

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