Posted by Don (VA) on September 05, 2006 at 08:25:15:
Straight options are done more often in commercial investing. However, there’s no technical reason why they can’t be done in residential. The only “problem” is that you’re tieing up your option fee without any return for the length of the option and then, if the property doesn’t appreciate sufficiently (as with any option) you lose the fee. It’s easier to go up to a homeowner and say, “I’ll lease your property, providing you cash flow, for a set period of time and, in return, would like the right to buy your property during or at the end of the lease.” And if the homeowner asks, “What am I getting out of it?” you can answer: cash flow, filling a vacancy, no more headaches, etc.
With a straight option, you don’t have those selling points. Your response is: “Cash in your pocket right now.”
Of course the cash doesn’t have to be much, but still you’re going to have to persuade the owner with something.
You could also spread the cash/compensation out over a period of months or over the course of the option. And you could also offer something other than straight cash–for instance, lawn mowing and snow removal, especially if you have a company already that offers those services.
If anyone has any other creative ideas, or suggestions on ways to minimize an upfront outlay, I’d like to hear them.
Hope that helps.