How Do I Use An Option Contract?

Hi guys, I'm a noob to the investing world and am in the education process right now as to learning the nuts and bolts of short sales.

I spent a great deal of time tearing apart the Land Trust and have recently begun to think that maybe this "smoke and mirrors" approach isnt the way to go.

Can somebody inform me how one could use an option contract when working a short sale? I've heard good things about it but have yet to understand it in depth.

Thanks a bunch!

[ Edited by davidstyles on Date 04/20/2008 ]

The option from the way i understand is used if you plan on passing it on to another investor and you place in the buyer's section your name and or nominee. You could also, as i was recommeded to do is have them sign a memorandum of the contract and have it recorded ASAP, where the seller cannot play games and shop your deal. HOPE THIS HELPED.

Thanks for the reply!

and/or nominee? That sounds a lot like an assignment to me. Will the banks allow that?

Does using an option in any way solve "chain of title" issues?

What are the advantages to using an option as opposed to using just a standard contract?

Could you elaborate a bit more as to how the option is beneficial for one who chooses to "flip" the property?

Thanks

[ Edited by davidstyles on Date 04/21/2008 ]

I'm copy pasting this from Lynne K. It's a good description of the option method that we've been using for short sale transactions the last few years.



In Reply to: Option to purchase posted by Lynne K. on April 15, 2008 at 17:08:53:

What you're talking about is the "new" way to quick turn deals on short sales.

It's similar in it's workings to the land trust method, but more open and fully disclosed to all parites involved.

It's not really "new" but is becoming more popular due to the fact that it's getting more and more difficult to get title insurance on homes that are being sold out of a land trust.

No title insurance means no closed deal to the end buyer as the mortgage company will not allow it.

The "Option Method" as it's starting to be called is a work-around.

As to needing a real estate license, you'll of course want to speak with your attorney, but I don't see where the requirement would be. You're inserting yourself into the deal as a principal.

General idea: You get option to purchase >>> record option to purchase which places you in chain of title and gives you beneficial interest >>> YOU list the property (with a realtor or FSBO) because you have interest in the property >>> get a contract with end buyer at higher price.

Everyone shows up on the SAME closing day with the SAME title company.

Owner "sells" to you and you fund the deal (you exercise your option) and then immediately sell to the end buyer who cashes you out with THEIR funds.

The difference between what you pay and what the end buyer pays is your profit.

Trick on this one is that there is no "simul close". Only a true double close with two separate sources of funds. You can use your own cash or can use interm financing programs like "Dough for a Day".
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