Use a Purchase Option to Lock in a Discounted Price

 

You can use a purchase option to lock in a discounted price.  This means you are protecting the time invested in sourcing, negotiating and structuring the deal, and you are effectively locking out the competition.

The power of this lies in the fact that the seller has granted you an exclusive right to buy within a defined and agreed time period.  Notice the word “exclusive”.  The seller is not able to sell to anyone else, except you.

At the same time you are able to sell the contract on to another purchaser, transferring the right to buy at the discounted price to them for a fee.

Let’s look at a real example from a North East town.   The seller had been marketing a very large and now empty house for nine months.  With no rental income the monthly mortgage payments of £475 was crippling.

Having started a new business recently and with a need for capital to support it and very little time to cope with an empty property, the seller’s motivation was keen.  After some discussion a purchase price of £93,600 was agreed which was below the marketed price of £110,000 and still enough to clear the mortgage and inject funds into the seller’s start-up business.

The seller was very concerned that he would be unable to make the mortgage payments before the house sold.  A four-month purchase option at £93,600 was agreed and a maximum of four monthly mortgage payments to be made by the buyer, which would be credited to the purchase price at completion.  Once the simple paperwork was signed the option was assigned to a waiting developer-investor for a modest but welcome fee.

Confident that planning would be granted, the developer exercised the option and later successfully converted the building into two flats achieving an end value of £200,000 and about £80,000 in equity after costs.

This case shows how you can profit from property deals that don’t really fit your personal buying criteria, or if as a finder you want to create quick cash.  Simply put, it shows how you can use a purchase option to lock in a discounted price.

 

Written by Julie Hanson

Julie is passionate about property – development, investment and portfolio planning. Along with husband Alec, Julie is actively building a property portfolio while helping others to do the same.

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