Using a real estate option to control land can turn a small cash investment into big profits. And the downside? You can lose all your investment, and many options DO expire worthless.

An option is a simple concept. You pay for the right to buy something within a certain amount of time at a certain price with certain terms. But you have no obligation to follow through and buy it.

Example of a Simple Real Estate Option

Suppose you want to build a home on a piece of land that is for sale for $52,000, but you are not sure you’ll be able to. Since you don’t want to lose the opportunity to build on this particular piece of land, you decide to try to “tie it up” with an option. You tell the seller you might want to buy it for full price, but you are not sure about your financing yet.

You explain that if he will give you an option to buy it at $52,000 within the next six months, you’re willing to pay an option fee of $1,000. You don’t have to buy it, but if you don’t buy it within that six months, he gets to keep the $1,000 - and presumably sell it to somebody else. If you do buy it he gets his full price plus that $1,000 (although sometimes the contract is written so that the option fee applies towards the purchase price).

Now lets go one step further with this example. You add “or my assigns,” “or assigns” or something similar (ask an attorney) after your name on the contract. This means that if you can’t buy the property, you can assign the option to somebody else, and they can buy the property according to the terms of the contract. In other words, they can take your place in the deal. You can let your friend buy it, or you can assign it for a fee to someone, and maybe get your $1,000 back.

Example of Big Money Option Deals

The big money is made when options are used in inefficient markets. These are markets where it is tough to put a price on things, and in real estate it includes markets where value can change dramatically according to use. For example, a corner on the edge of a town can be worth $65,000 while used car dealers are the likely market, an then a year later worth $200,000 when several fast-food companies realize how much traffic goes by there.

Where do options come into this? You use them to connect a property with buyers who will put it to it’s highest use, meaning they will also place a higher value on it. Basically, you “tie up” a property with an option - preferably for a year or more - and then go looking for the right buyer. Find that right buyer and you can sell your option for a large profit.

Many times an option will expire and nothing will have happened - you didn’t find a buyer for it. That means you lose the option fee. That is the primary complaint that would-be options investors have against this strategy. On the other hand, those who know how to work this game just play the odds and don’t worry too much about losing several small option fees to win an occasional huge profit.

Lets put the theory into a simplified example. Farmer John has 80 acres just out of town, and you think it would make a fine new subdivision. Developers are making subdivisions in the area with great success. John hasn’t given too much thought to selling, but when you approach him with the idea, he says that he figures the land is worth $280,000.

You tell him that you are not sure if you can buy it or not. You need time to talk to possible partners, and to look into financing. You tell him that if he will sign an option giving you (or anyone you assign the option to) the right to buy it in the next 16 months, you’ll give him $5,000.

16 months is a long time to tie up the property, he says. You remind him that he wasn’t planning on selling yet anyhow, and he gets to keep the $5,000 if you don’t buy. Not only that, but you will set the price at $300,000, so if you do buy, he’ll get even more than he hoped. He agrees.

Of course, you have done some homework before this, and you know who the biggest developers are and what prices they have paid for land. You have sixteen months now to get one interested enough to buy your option. Otherwise you lose $5,000.

You get to work developing a marketing plan. You get a plat map of the land and make photocopies. You lay out on paper how the land can be split into the highest number of lots. You find sales of nearby homes, and work up some numbers for how much in total sales is possible.

You present the property and plans to several developers, letting them know that you want to do business with whoever will give you a decent price. One developer offers you $10,000 for the option, and will pay cash now, and take the risk that he can’t make the deal work. That isn’t enough, so you talk to others.

Real estate investing course offers an easy way to earn more money within shorter period of time. Real estate provides more opportunities than any other type of investments. So, while thinking of investing in real estate the prospective investor should look for real estate brokers and agents who help buyers find the properties they are looking for.

A real estate investing course is a better method to get more industry information and lessons to track real estate changes. There are different types of real estate investing courses available. Select the appropriate one according to the needs. There is also online real estate investing courses, which are rather cheap and affordable. Exams are also conducted during the training sessions in order to achieve full credibility.

A perfect real estate investing course must provide the investor a systematic, possibility-driven method to discover, create, and harvest real estate value. And a real estte investing course should also guide you to lead your daily life with an entrepreneurial mind-set, character, and action plan. Various types of real estate investing courses are offered by Institutes and Universities. These courses are mostly interactive in nature and generally contains:

- Finding and purchasing income producing properties
- Understand Real Estate Finance
- Negotiate Profitable Real Estate Deals
- Entry and Exit Strategies for Savvy Investors
- Significantly Increase the Value of Any Property
- Profit by Managing Real Estate like an Entrepreneur

The real estate investing course makes learning look and feel natural thus learning is not about reading, tests, or lectures, it is about trying out ideas and seeing what happens.

Real estate investing is not an easy task. One should be knowledgeable and be clear in dos and don’ts in real estate. One also needs to be properly trained in the real estate investing to become a successful investor. Thus the real estate investing courses are the most important step towards becoming a successful investor. Real estate agents and brokers can only guide and prevent the investor from doing mistakes. But with the right blend of intelligence and accuracy along with a real estate investing course, things will take their proper shape.

Real estate broker deals with all transactions of real estate business. A real estate agent finds sellers for buyers and buyers for the sellers of real estate. Real estate brokers provide every kind of help to sellers as well as buyers. Real estate agent can be a person as well as a firm that helps you in selling/buying real estate.

Real estate broker tells you the current value of real estate. Nowadays broker performs all essential business activities. Real estate broker deals with industrial, residential as well as commercial real estate. Agent can provide help for any kind of real estate. Broker gives suggestions to sellers to increase the cost of assets and also about finest piece of land to the buyers. By appointing real estate agent you can definitely reduce your headaches.

Sometimes real estate agents work without owning any type of real estate brokerage. You should be aware of such things at the appointing a real estate agent. You should check classifieds for the brokers in your local area as well as the area where you want to buy real estate. Verify the reputation of real estate broker/firm.

Call two or more agents for interview and then ask some questions about the firms where they worked for some time, dealing with which type of customers, how long they’re in sell/purchase business and also ask about active number of clients. After getting required information about them select one or two finalists from them. Afterwards make a single call to selected real estate agents and select only one who is the best.

Have you tried your luck at foreign exchange, bonds and stocks, but to no avail? Are you perplexed as to what to put your money on? Consider real estate investment, as several people have turned into millionaires through shrewd investments in real estate. By means of this article, we will elaborate four common real estate investing tips, which would help you realize significant profits via property investment. Be it a newbie or a seasoned investor, these tips are sure to be of help to one and all alike.

Real estate investing tip #1 – Perhaps the most lucrative investment technique is to buy a run down property, fix it up, and then sell at a significant profit. Since the property is shabby, you might be able to acquire it for a low price. However, you must ensure that the cost incurred in the repair is restricted to a minimum so as to guarantee a profit. You can do this by making sure that the basic amenities are in place, without going overboard with the renovation. Such a buy-fix-sell scenario demands excellent property valuation skills and a rather frugal attitude while renovating.

Real estate investing tip #2 – Purchase properties that are about to face a foreclosure. A property typically faces foreclosure when the homeowner is financially distressed and is unable to repay the loan. Another common reason for foreclosures is dissolution of marriage with the abandonment of the house by either of the couple. Such a distressed property can be bagged for a low price by an articulate investor, who can convince the homeowner to sell the property prior to the foreclosure sale. Then the investor may sell the newly bought property at a significant gain.

Real estate investing tip #3 – Locality is a paramount aspect in real estate investment. Two similarly built houses may have varying valuations if they are situated in different locations. So, you must be abreast of the hot locations in your concerned region. If you are just about to start you real estate venture, I suggest you look for places that offer high rentals. Purchasing a property in such a region would result in a healthy monthly source of income.

Real estate investing tip #4 – Ever heard of Warren Buffett? The acclaimed stock investor made billions through a contrarian’s approach to stock investment. You may take a contrarian’s view to real estate investment as well. For instance, you may buy a property when it is out of favor with the majority of investors. That is, acting in opposition to the majority opinion. A contrarian’s approach is not a sure shot path to real estate success. Moreover, it’s complicated and therefore beginners are advised against it.

While investing in a property and real estate, one faces many things at a time. It is advisable to get to know about the small things involved in a real estate deal. Expenses during an investment in the real estate are one of such things that are not considered at first. Maintaining a record of the expenses during the investments can minimize the risks. One never knows when the market will vary in terms of the prices. In this case the risk factors and expenses should be considered before making any investments in real estate.

Investors usually sell the stocks at a profitable price and make a real-estate investment. Others belong to the middle class which is gaining a higher income that can be disposed off. The investors usually make the investments in the houses and other properties as their second home. One should always make an investment in the real-estate which can fulfill the financial goals. So there are some points that should be considered while making an investment in the real-estate.

Factors to consider in a real estate investment

Taxation is the main factor to be considered in a real estate deal. A “wealth tax” refers to the investors who already own one house. The tax is not applicable to the wealth below certain amount. This kind old wealth also comprise of jewelry and car along with the extra house. If the extra owned house is put on rent for considerable duration then also it does not come under taxable wealth. For the investors who have put their second home on rent are liable for “Income Tax”. Even though the second house is kept vacant and not put on the rent, the government assumes to be on rent and applies the income tax on it.

Leveraging is one more such factor to be considered. The term means taking loan for buying home or making investments. If the loan is taken from housing finance firms, then the rate of interest is hampered with the rise and fall of the market price. The investor may get more loss in the falling market and will get fewer returns in an uprising market. In leveraging the loan can also be taken for buying mutual funds or stocks.

The housing loan is also taken to carry out the tax savings. The housing loans will increase the net income and hence in turn will increase the cash outflow. The real-estate is considered to be an illiquid asset, as it is difficult to resell it and convert into the hard cash. That is why it has major impact on price.

The major expenses that are involved in the real estate are the property values and rents. The investors can check out for the comparison for the property value by investing the prices of nearby similar properties. The insurance factor also turns out to be an expense in the real-estate investment. The seller’s insurance coverage should be checked out before the deal.

Consider these parameters for a real estate deal:

Property Value: $250,000
Purchase Price: $160,000
Repairs: $2,500

If you analyze the numbers, you see that the equity available in this deal is $87,500 (Property Value minus Purchase Price minus Repairs).

So here’s a hypothetical question for you: Assuming that the information above is accurate, and the property is located in an area that you view as acceptable and/or favorable, then:

If I offered to give you this deal in exchange for $10,000 in cash, would you do it?

Remember - this is hypothetical. The real question here is this:

Would you exchange $10,000 in cash for $87,500 in equity?

For most savvy investors, the answer is: Absolutely YES!

This is called “Wholesale Real Estate Investing” - the process of buying a lot of equity at a very significant discount from another real estate investor who has already done the hard work of finding a deal and getting it under contract.

Just think about that - consider how easy real estate investing would be for you if you had a network of real estate investors in your area (and maybe even all over the country) who, several times each month, offered you the opportunity to purchase significant amounts of equity for a severe discount…

…It would be quite easy to become wealthy, fairly quickly, wouldn’t it?

The answer again, is: Absolutely Yes, it will.

It is through smart “wholesale real estate investing” that you can increase your net worth by $20,000 to $100,000 on every real estate deal that you do.

…Now the burning question becomes, “Where exactly do I find these wholesale real estate investing deals?”

I know of at least 3 solid sources…

You’ve got to admit - it will be a pretty wonderful thing when you know how to find great real estates deals in which you can trade a small amount of cash for a large amount of equity without even having to find the deals yourself…

…And that’s exactly what “wholesale real estate investing” is all about.

So let’s get right to it. Here are 3 places to find wholesale real estate deals:

1.) Visit the local real estate investing club in your area. Almost all of these clubs have networking opportunities to work with other investors who wholesale deals regularly, and this is an easy way to find great opportunities.

2.) Watch for ads in the newspaper, television, and in other media that advertise slogans like, “We Buy Houses”, or “Sell Your House in 9 Days” or anything similar to that. Most of the time, these people are real estate investors, and they are happy to wholesale deals to people like you.

3.) Watch your email-box. Why? Because if and when you choose enrollment in various free e-courses online, such as that via tm-RealEstateInvesting.com, you’ll be provided with automatic notification about great local and national deals as they become available. But be forewarned - you’ve got to act quickly whenever these deals are announced, because obviously the response is always significant.

If you have ever thought about investing in real estate, now is the time. You may be thinking that since the real estate market is in the tank at the moment and that it can’t possibly be a good time to get into this market. But you couldn’t be more wrong! There are more foreclosures than ever right now and that presents a ton of opportunity for us investors who have been waiting for prices like what we are now seeing. I know the media is out there saying the sky is falling. However, there are many successful investors quietly sitting back and laughing as they make money hand over fist. Let me let you in on a little secret that all successful investors know…The time to buy is now!

It’s the perfect time to get involved right now as a real estate investor. Lenders are currently finding themselves in situations where they have loans that are not getting paid, and home owners are being forced into foreclosure everywhere you turn. There are banks all over the place with so much inventory, they don’t know what to do with it. They simply cannot move it quickly enough. There are also thousands of incredibly motivated sellers just waiting for someone to come along and save them from foreclosure. That ‘someone’, could be you.

There are a few things that you should keep in mind before getting started:

1) Never pay too much for your investment property. There are plenty of homes available for very reasonable prices. You make your money when you buy! You should never pay more than 65% of the after repaired value of the home. Don’t forget that you will have other costs to pay, such as holding costs, closing costs, as well as any money that you spend on the rehab of the home to bring it up to rentable or saleable condition. Bottom line, you need to be able to still turn a profit.

2) Use none or as little of your own money as possible when you purchase an investment property, if at all possible. If you are using your own money, you will be limiting your own cash flow. You can borrow money from a conventional lender and put as little down as possible, or you can also get a hard money loan for the cost of the property and the rehab costs.

3) Don’t do your own renovations. You have probably seen them on TV shows, those house flipping pros doing their own rehab work. However, you won’t be able to do more than one flip at a time if you’re doing your own work. You need a solid power team, including reputable skilled contractors who will fulfill this end of things.

4) To get great deals, buy from motivated sellers. Banks are quite motivated these days, being that they have so much inventory right now due to all the foreclosures. There is also a system to find motivated sellers out there called the Four D’s. Look for them. They are: Death, Divorce, Disaster, Disease. All of these reasons will produce motivated sellers and you will be helping these folks out who have been hit by these types of life events, by purchasing their home before they go into foreclosure.

5) He who mentions dollar amounts first loses. It’s a known fact. The first rule of negotiation is to wait for the other person to name a price. List all of the items on the rehab punch list during the counteroffer phase, as negotiating power.

6) Finally, The best thing that you can do for your own success in real estate is follow and focus on a tried and true system for investing in real estate. Find something that resonates with you, stick to it, focus on it and take action-that’s where most folks fall short. Just do it! Stick to a tried and true system and you will be making money in no time at all.

So you have the ads running, you have the post cards delivered, you have the bandits signs up, and now your phone is starting to ring. What do you do when the sellers call? What questions do you need to know in order to evaluate the deal and make sure you present the right offer? This article will give you the top five things you need from the seller in order to evaluate a potential real estate deal.

It’s quite obvious that you will need the name and phone number of the seller who is calling you. Therefore, we will not get into that. This article is about important questions. Not, common sense questions.

One: The first important thing that you need from the seller is the property address, square footage, and bedroom and bathroom information. Find out where the property is located. Ask the seller what is in the surrounding area. How far away is the nearest shopping center, etc.? Try to get as much detail about the property as you can.

Two: Next you will want to know about the repairs needed on the property. Tell the seller to be specific so you can get an idea of the amount of repairs the house needs. Ask questions about the boiler and the roof. Find out what was upgraded already. Ask about the electric and plumbing in the house. What about the windows, kitchen and bathrooms? Get the seller to tell you as much as possible.

Three: After discussing the property now you want to know why they are selling the property. Make them go into detail. This is very important. This question will help you determine if you’re going to take a look at the property or not. If they say that they are selling because they need the money. That is not a good enough reason. If they are selling because they need cash to pay off an expensive medical bill that was for a life threatening illness…. now you’re talking. Obviously, you want to target motivated sellers, so try to find out the seller’s why (in detail).

Four: Now it’s time to ask about the financing on the house. What is the loan balance on the house? Are they current on their loan and taxes? Will they take what they owe? How much is the 1st mortgage amount? What about the second? Is there a 3rd mortgage? How much are they asking for the house? Try to find out as much about the financing on the house as you can. If they are serious motivated sellers they will tell you. If not, they are probably not your cup of tea.

Five: The last important thing you need to know from the sellers is if they are willing to take less money if you pay cash. Ask the seller this question… if I were to pay cash and close quick, what is the least amount of money you are willing to take? This is a very important question because this will tell you how motivated (desperate) the seller really is.

Remember to ask your questions with confidence, be polite, and keep in mind that you are there to help the seller get out of their situation. Ask these questions and you will eliminate the unmotivated sellers off of your list.

Real estate investing is about more than picking up a property cheaply and reselling it at a profit. While how-to books and real estate guru seminars may make it seem easy and risk-free, there is a reality to real estate investment. To learn more about the potential downsides of real estate investing, keep reading.

It Takes Capital

Typically, real estate isn’t considered a quickie investment, and your capital can be tied up for a long time. A down payment on a home can’t always be taken out and withdrawn in the case of a financial emergency or the need for quick cash.

That capital could also be used for other investments. For example, let’s say you invest $20,000 into a home that winds up not appreciating at the 8 percent annual rate you hoped it would. Instead, it depreciates and then eventually appreciates at a low 4 percent rate. That $20,000 could have made more by investing it wisely in a diversified investment portfolio.

Returns Will Vary

Like any investment, other than GICs (Guaranteed Investment Certificate) or guaranteed savings programs, your returns are going to vary. While real estate is more stable than, say, the stock market, that doesn’t mean you can bank on a 10 percent annual return.

You Will Pay Capital Gains Taxes

Taxes can slash your profits on your real estate investments if you’re unprepared. While there are deductions and capital deferral programs available to real estate investors, you need to understand the law and be prepared to apply it to your own circumstances.

Closing Fees and Transaction Costs can Reduce Profits

Unless you’re savvy enough to handle your own sales, you’ll have to hire a real estate agent, meaning you’ll have to pay commission. In addition, most investors will need to pay closing costs, title insurance, inspection rates, legal fees and more.

Typically, the costs associated with any real estate transaction usually hover around 15 percent of the transaction, whether you’re buying or selling.

There is Work Involved

While a real estate investment normally does reward sweat equity, that also means you have to put it in. Unlike stock market investments where it takes little more than cash and a telephone or a computer to make an investment and see a possible return, real estate investment involves getting out of your chair and a lot of leg work.

Whether it’s driving out to sale sites, attending home viewings, cleaning properties, maintaining rental units, upgrading or renovating houses or preparing a house for sale, it’s all hard work that you’ll have to put in. So, before you jump into real estate investing, make sure you have the time and energy to invest alongside your money.

Owner financing has always been something that savvy investors look for in a deal. Amidst current market conditions, these creatively financed deals have become more essential to investors than ever. In the wake of the subprime loan crisis, Freddie Mac has announced that beginning in August of 2008, it will reduce the number of loans that an investor can hold from ten to four. With such strictures, investors must have as many tools available to them as possible to creatively structure deals.

The current market conditions have left many houses languishing on the market unsold with diminishing possibilities for a full price sale. But owner financed deals can help both the investor and the seller to get what they need.

In many instances, investors can offer homeowners full price if they are willing to give them good terms. For example, a house that would have had negative cash flow with a traditionally financed 100% loan (which are nearly impossible to obtain now), can cash flow if the owner carries back. Instead of asking for a particular interest rate, the investor would offer to make the monthly payment that would make the property profitable. The seller would receive the full purchase price, a set payback period of 15, 20 or 30 years would be agreed upon, and the number and amount of the payments would determine the interest rate.

Or, the investor can also offer the seller full price, but ask for a specific interest rate which is lower than the banks are offering, in exchange for getting the house sold right away. Additionally, the investor can also negotiate a period of lower or even no payments while he is fixing up the property. All of these things are negotiable, but investors need to tap into their creativity when structuring these deals to continue building their portfolio in the current market.

To sum up, with both the number of loans available to each investor drastically reduced and the near impossibility of obtaining 100% financing, investors with little extra capital can continue investing by asking sellers to carry back. Don’t stop investing just because fewer loans are available!