Epic Real Estate Investing - Options | Creative Real Estate Investing for Beginners | 1010

Episode Date: May 6, 2020

It’s never a money problem that holds you back but rather an idea problem! Creative real estate investing is the practice of inserting an idea in a place of money! In today’s episode, Matt shares a creative strategy that allows you to control a property without actually buying or owning it. Tune in and find out how! Learn more about your ad choices. Visit megaphone.fm/adchoices

Creative real estate investing is the practice of inserting an idea in place of money. As a real estate investor, it's never a money problem, but rather an idea problem. Isn't that exciting? You don't need a lot of money. You just need a lot of ideas. And I'm going to give you a ton of them. We refer to these creative ideas as terms. Terms like equity sharing, options, lease options, agreement for deed, seller carryback, subject to, wraps, all-inclusive trust deed, and so much more. Right now, I'm going to show you how to use options in your created real estate investing. This is Terrio Media.

Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening. If you want it faster, visit. at R-E-I-Ase.com.

Here's Matt. An option. It's a unilateral agreement for you to buy or sell on or before a specific date at an established price. It's a unilateral agreement. Meaning, it's a one-way street

where the seller is obligated to sell, but you are not obligated to buy. No risk. And I'll get to that. The seller who gives the option is referred to as the optionor. And the buyer, the receiver of the option,

is referred to as the optionee. For this agreement to be legal, it must include consideration. That's the amount that you're paying for the option, and we'll get to that too. And it must also include an expiration date. This is a strategy for controlling a property without actually buying or owning it.

In a nutshell, an option gives you time to pull your master plan for a property together with no stress or pressure. There are several scenarios where this may be your best option. Pun intended. First thing, you cannot transact real estate in the United States without a license unless you are a principal in the transaction. When you enter an option agreement

with the seller, that makes you a principal in the transaction. Boom, now you're legal. So, if your intent is to resell a property that you don't yet own, you first need to become a principal before you can do so. Wholesalers, you hear on me? Don't go anywhere. It gets better. In addition to control, an option contract gives you equitable rights to the property with zero risk. And with those rights come the right to inspect the property and the right to market it. So you can market for a buyer who would be willing to pay you more than you have an option for. Or you could market for an investor partner. Refer to the last lesson on equity sharing and you might get an idea or two for that over there. An option on a property can allow you to tie it up to give you time to conduct longer than usual due diligence

before taking ownership. As an example, for property development or for zoning or property use changes. Or maybe you need time to get special permits from the city. Or maybe you're waiting for some event to happen that could impact the value of the property. Like you heard Home Depot might be buying the lot across the street. Or word has it, your local football team is contemplating building a new stadium nearby. And if they did, it would boost property values in the area. That could change everything for you. These are examples of how an option can give you an extended period of time when you need specialized information for a specific exit strategy. Another use is to combine an option agreement with a lease agreement to create a lease option,

to create cash today and cash flow tomorrow. We're going deeper into lease options in the next lesson. Another reason to tie up a property with an option contract is to see if you qualify for the funding that you're going to need to pull off your master plan for the property. Certain types of loans can take a while, a long while. Another great use for options is to resell luxury homes, where it's not unheard of to turn a $500 option fee into a $50,000. check or even a six-figure check.

Yes, I said six figures. It's not a stretch to get a $1.6 million option on a $2 million house and find a buyer that will pay you $1.7 million for it. Imagine if you were to do one or two deals like this a year inside of your self-directed Roth IRA retirement account, where the government, as of the recording of this video, has an annual contribution limit of $6,000. But with a single option transaction like this, you stuff $100,000 into it. legally, morally, ethically, and tax-free with the government's blessing.

And of all these scenarios, if they don't pan out the way that you want them to, say you couldn't find a buyer, or the city wouldn't grant you the right permit for your development plans, or your football team decided to pick up and move to another city altogether, and the option period expires. The option contract becomes null and void. That's it. There's nothing for you to do or to be concerned with. So here's the process when you're buying an option. One, identify the property. Two, negotiate with the seller your purchase price as low as possible, and you want to negotiate today's value. Conversely, if you're selling, you want to negotiate the future value as high as possible.

Three, negotiate the expiration date as far out as possible. 30 days is pretty easy, and actually 90 days shouldn't be a difficult request. Beyond that, you may get some resistance, but it really all depends on the actual deal. A cool tip is to include a clause that allows you to extend the option term for a small fee. just in case you need some more time to pull off your master plan. Four, negotiate the option fee as low as possible. And how much this option fee should be is going to be a big fat. It depends.

It depends on how confident you are about your exit strategy and how much you stand to benefit. I mean, if it's a tight deal or if your business consists of doing a high volume of options, you know, 50 bucks, 100 bucks, might be all that you are willing to and need to pay for the right to tie up the property. Or if you stand to make a boatload and you're confident that you can, and pull it off, you might be willing to pay a whole lot more for that option. It can be a gamble, and that decision, that's yours to make. You can hedge your bet, however, by breaking the option fee up into monthly installments or multiple payments. And if you get to a point where it's pretty clear your plan is not going to come together, you can just stop the payments. Let the option

expire, and you're done and free to go. No risk, other than losing your option fee. So keep that in mind when you enter the agreement when you're negotiating your option fee. Bottom line, ask for the moon. Ask for more than you actually need and settle for what you get. But if you don't like what you get, don't hesitate to reject the seller's best deal. There'll be more. Make the deal that you want to make. The cash today can be great by leveraging options in your real estate investing. And if you want the cash flow tomorrow and every month thereafter too, follow me to the next creative real estate investing term, lease options.

If you want to go deeper with creative real estate investing and you want to get a head start, you want to move ahead, you can download the same cheat sheets that I give to my private clients at Epic. breakthrough.com. See you next time. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. You didn't know, home for it, we got the cash flow. This podcast is a part of the C-suite Radio Network.

For more top business podcasts, visit c-sweetradio.com.