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Property Investing often requires creative strategies to make it successful.
Professional property investors often use the option contract as a tool to
develop some useful investment strategies. Here are some of the ways the
option contract can be used to secure property for profit with little or
Option contracts have long been used by Developers to secure potential
development opportunities. They allow the developer to exclusively hold the
property while they have the local authority approve the development application.
An options contract can give the developer the right but not the obligation
to purchase a property. They pay an option fee to the vendor in exchange
for this right.
When the option contract expires the developer either, buys the property
and proceeds with the development, or, passes the property back to the vendor.
Yes, it costs the developer a small fee to secure the opportunity (often
1% or more of the total asking price), but it is a small amount if the
development cannot proceed or is not profitable. This way the developer limits
Property investors can secure a property in the similar way that developers
do, like the example above, using a variation of the option contract. This
type of option contract allows the investor to secure a property with a
negotiated deposit and assign it to another purchaser if required without
having to purchase the property first.
A property is secured by an option contract with a term of 2-6 months, sometimes
more. The investor can then add value to the property before reselling it
for an increased price with little or no closing costs.
Here are a few ways they are used to secure property and create profit;
1. An older property is secured with an option contract. The agreement also
provides for access by the investor to renovate. Once the renovation is completed
the property is marketed at a higher price, before the option contract expires.
The investor then assigns the contract to the new purchaser and the sale
then becomes a contract between the original vendor and the new purchaser.
2. An option contract is used to secure an off-the-plan property, with a
1218 month completion date.
In this situation the vendor agrees to allow the investor the option to buy
or on-sell the property. The investor may purchase a number of apartments
at a reduced price, when it is nearing completion, the property is sold at
the original or a higher price. Providing the market has moved up during
the time to completion a reasonable profit is made.
Additionally, the fixtures and fittings can be upgraded to provide even greater
3. An option contract can be used as a method of providing 100% finance.
The property is secured on a long term option contract, 12 months or more
for a set price.
Rising values in a fast growing real estate market ensure that by the time
the option contract expires the value of the property has gone up sufficiently
to ensure that there is enough equity in the property to cover the deposit.
An option contract can provide some attractive investment strategies for
property investors wishing to maximize their returns. In all cases the option
contract provides security for the vendor and opportunity for the property
See an Option Contract sample
contract (an alternative to the lease/purchase arrangement used in the
USA) on the Property Investors Association of Australia web site.
This article may be reproduced in its entirety provided the resource box
below is included as part of the article.
John Moore is a Prosperity Coach specializing in Property and Business coaching.
He has helped many people create wealth in their lives and is President of
the Property Investors Association of Australia Inc.
an organisation dedicated to providing news, information and resources to
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