Copyright 2005 Alex Nghiem
Real estate investing is currently a very hot topic because of the increasing property values and the number of investors who are looking for a safer alternative to the stock market.
In the last 10 years, stock investors lost trillions of dollars in the stock market, so they are still understandably skittish about returning to the market.
Most beginner real estate investors often start in real estate investing by a rental property using the traditional method. That is, they put down 5% to 10% and then borrow the balance from the bank. While this works, it requires more capital than most investors can initially raise, but more importantly, it creates unnecessary risks.
A better and lower-risk way is to use a real estate option, which is arguably the best kept money making secret in the industry. Having talked to thousands of investors, I have found that probably less than 10% understand how to use this very powerful technique. However, savvy investors such as Donald Trump use real estate options in almost all of his deals.
A real estate option can be used for multiple reasons (estate planning, speculation, etc.), but this article will focus on using a real estate option to quickly generate cash.
Unlike stock options, which can be high risk, a real estate option is less volatile and offers some key advantages.
* A real estate option allows you to control a property without owning it. Ideally, you want to use an option on an owner-occupied property. Most homeowners are not trained to sell a house and often end up not being able to sell it within a reasonable time frame.
Essentially, you use an option to control a property while marketing it and as soon as you sell the house, you pocket the difference between the strike price (the price the seller agreed to sell the house for) and the selling price.
* When done properly, you can get a real estate option on a property, market it and cash out 30 to 45 days (I have a client who has done it as little as 4 days and made $9,800).
* By using options only on owner-occupied homes, you avoid many of the drawbacks of traditional real estate investing (vacancies, holding costs, mortgages, repairs and tenants).
* Another huge advantage is that in any city, there is a large number of homeowners who would gladly let you option their house, especially if you can know how to sell it quickly. The key is to demonstrate that you have a pool of eager buyers who are ready to purchase, and you can build this pool of eager buyers through marketing and networking.
* The amount of money you risk is low because you can often negotiate a 90 day option on a $100,000 house for $10 (yes, ten dollars). If you can't sell the house, then you are out of $10 and some sweat equity. However, with every house you option, you are continually building a more complete database of what your buyers want.
* Using options doesn't require you to get a license. Starting today, you can go out and acquire an option on a property and start marketing it.
* Real estate options are very flexible because you can option almost anything. While single residential homes are the most common thing to option, you can also purchase an option on land, commercial buildings, apartment buildings and even trailer parks.
In summary, using real estate options is not a well known technique but savvy real estate investors have been quietly using them to make a fortune for years.
Isn't it time you did the same?
About the Author
Alex Nghiem is the co-founder of Wealthautopilot, which provides coaching and educational products/events for real estate investors who want to turbo charge their results immediately. To get a weekly free newsletter on cutting-edge real estate tips and a 6-part course on real estate options, visit http://www.wealthautopilot.com/course-a