Contract is transferable

Here's the special twist about option contracts. The contract is transferable. The buyer with the option can sell that option contract. This is actually better than buying and selling the real estate, because such a tactic will involve two sets of closing costs. By selling the contract to a prospective buyer, the investor avoids all the real estate transfer stamps and closing costs.

For example, let's say that Ronald buys an option on a 4-flat for $200,000. A month later, he finds Albert who is willing to buy the property from him for $250,000—a $50,000 profit for Ronald. Ronald can do one of two things:

  • Exercise the option and sell to Albert. Ronald can now exercise the option and buy the property from the seller. He then turns around and immediately sells the property to Albert for a nice profit. This can actually be done simultaneously, so that Ronald doesn't even have to get a loan or use his own money to purchase the property.
  • Sell the option to Albert. Another, probably better option is for Ronald to simply sell his option to Albert for the $50,000. Because he is selling the option and not real estate, Ronald avoids transfer stamps and other property-related taxes. Albert now can exercise the option and buy the property directly from the original seller.

We hope that you've found our Mortgage and Real Estate Resource helpful and informative. We welcome all comments, critiques and suggestions; please send emails to [email protected]. Remember that whether your are buying a home or an office building, you are investing in real estate. As with all investments, the best investors are those who can gather the most knowledge, tools and resources. Regardless of whether you use our lending services, please spread the word about our resource center to anyone you know who may benefit from our site.

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