Small commercial business investors frequently do not take advantage of things that the larger investment pros do. The small investor does not have a team of attorneys or other professionals to make him aware of many of advantageous strategies available if you just implement them.
As a small commercial property investor, you can make big plays by utalizing the savvy real estate strategies used by the pros.
One of thoese strategies is OPTIONS…Using Option-Contracts to gain control or ownership interest in the company…
Here’s How it Works:
Although many of the same principles are the same for both residential and commercial investing there are some very major differences. There are also numerous minor differences that can add up to big problems.
Options are used in the stock market extensively. Years ago some smart investors started using the same principle to investing in real estate. It has paid off HUGE dividends for those who’ve deployed it successfully.
We use the word OPTIONS, as in ‘plural’ because there is more than one type of option. There are many types.
As a ground rule…You’re using some sort of option to gain some sort of control on the property. (option: DEF. gives you the OPTION to do or Not do something and can give you control of the property or an equitable interest in it.)
Becoming well versed in options gives you a HUGE advantage as an investor. Because it simply gives you more choices, more ways to tie up a property, and often reduces your risk because you’re leveraging ownership. Using options can make you a real winner when it comes to maximizing your deal opportunities.
To give you a feel for what we’re talking about, here are some common options used in commercial real estate deals:
1. Use lease with option to use the property without purchasing it. (similar to a residential Lease/Option)
2.Use option to lock in a specific price and conditions (the Option-Contract gives you the OPTION to buy the property for a specified price)
3. Use options to avoid EPA problems, such as asbestos, radon, lead based paint and more (You have use of the property but since you don’t own it, any EPA problems are not your concern)
4. Options may reduce some of the taxes
5. Options may be altered to fit the changes in the political and economic environment.
6. Use options as leverage. Options are free of debt and you have control without the risks of ownership. (tie up a property with an option-contract than use that contract as leverage in some other deal/negotiation)
7. Use options to reduce your upfront cost
8. Use options instead of rent
9. Use options to control the property but not to own the property
10. When selling – use options to spread out your income for tax purposes (very cool tip)
11.Option a pre built building then finalize after completion
12. Option equipment for your business (kind like Lease/Option)
13. Trade equipment for option
14. Do owner finance as an option
15. Option to lease (different than lease-option)
16. Use options to protect your assets
17. Use short term option instead of a sales contract to give you time to do your due diligence regarding a property.
18.Option mineral, water and other rights (gives you the right to drill/dig for these minerals on their property. Very common in central and western states)
19. Use option to time your 1031 transaction
20.Use options as a tax strategies
21. Rolling options
22. Use options to stretch the profit, as in 121
23. Use options to enhance your financial statement
24. 1031 your option
Options have a very long history of being used in all types of transactions. You can use an option for just about anything you can think of.
It is good practice to define the word “option” means. Many words have more than one meaning. You may have noticed in most government documents there are a list of words with the definition that is to be used for that section of the document. Many people have bought or sold a home using a lease-option agreement. Most of the time there is no separate agreement and no money paid for the option. It could be assumed that the owner will give the renters the first right to buy the house at the end of the lease.
I think it is better to Option a property than to do a ‘subject-to” purchase. This strategy gives you control of the property, while you make the payments. You should also put the signed deed papers with an escrow attorney so when you get ready to buy the property there is no problem with the documents.
Option opportunities are everywhere. Knowing the principles helps you see the enormous possibilities. They are especially workable for small commercial property investments and your knowledge of them will go a long way to impressing prospective sellers and help you acquire deals that were heretofore out of reach for one reason or another.
One particular strategy using options is the Master-Lease Option and we have an entire video on the topic that you can watch right now.