An option to purchase contract means that you have a right to buy the property anytime during a. Of time for a certain amount of money. This right cannot be taken away from you. Generally you can sell this right by assigning the option, unless it has stated that you cannot assign the contract.
So what is the contract for option? A contract for option to purchase is like a contract for deed. You don’t get the deed yet. You put some money down, you make payments over a period of time, and then there’s a balloon payment. You generally get a refinance loan through the FHA on cheaper properties and more conventional financing on more expensive properties.
So contract for option means that you have a lease and a contract for option to purchase. You do not have the option yet. It was designed by an attorney to avoid what’s called Equitable interest. Equitable interest is illegal term that means that you have Equitable Title.
We also call this a virtual option. It works like an option to purchase.
When we do a contract for option to purchase and a lease we create closing documents but do not put the date in the contract. We open up an escrow and pay to keep the escrow open. Then all it takes is the tenant that’s leasing the property to go get financing for that amount of money. If they extend the contract for option period, Then a new sale and purchase agreement is created and placed in escrow.
There are many roads to investors that are nervous about giving a tenant that has nothing to lose but first and last month’s rent and Equitable interest in the property through an option.
This contract for option protects the interests of the owner seller or the real estate investor.