Strategy Option
Training: Mastering Real Estate Options with Brian Gibbons
Website: www.REISkills.com
Topic: What is an Option? Unlocking High-Leverage, Low-Risk Investing
Core Concept: The “What” and “Why” of Options
What is a Real Estate Option?
An option is a powerful financial tool that allows you to secure the right to control a property’s future value for a fixed, upfront price today. Think of it as paying a small, non-refundable fee to “lock in” a deal and remove the uncertainty of what might happen tomorrow.
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Your Cost (Premium): The non-refundable fee you pay the seller. This is your maximum potential loss.
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Your Benefit (Control): The right, but not the obligation, to buy (or sometimes sell) the property at a predetermined price before a set expiration date.
Why Use Options? The Ultimate Risk Management Tool
In traditional real estate investing, your entire investment is at risk. A market downturn, new zoning laws, or personal circumstances can wipe out your capital and planned profits.
An option flips this script. You make a small “bet on the future” by paying a modest amount today instead of the full purchase price. This allows you to:
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Control valuable real estate with very little capital.
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Define and limit your risk to the cost of the option premium.
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Capture 100% of the appreciation between your locked-in price and the market value.
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Walk away if the deal no longer makes sense, with no further obligation.
The Two Powerful Structures: “True” Options vs. “Virtual” Options
A critical distinction in our methodology is between a direct option and what we term a “virtual option.” Choosing the right structure is essential for protecting your interests.
| Feature | True Option (Lease Purchase Option – LPO) | Virtual Option (Lease & Contract for Option – LCO) |
|---|---|---|
| What is it? | A lease combined with an immediate option to purchase. | A lease plus a separate contract that promises to deliver an option in the future. |
| Property Rights Conveyed | Can convey equitable title, giving the tenant/buyer many ownership rights and burdens. | Conveys no property rights. It is a personal property contract (like a beneficial interest in a trust). |
| Result of Default | The option holder’s interest must be terminated through a lengthy and costly foreclosure process. | The tenant can be removed through a much faster and cheaper eviction process. |
| Best For | Situations where the buyer has a substantial investment in the property and deserves the due process of foreclosure. | Protecting the investor/seller. Ideal when the tenant has minimal skin in the game, preventing a foreclosure scenario. |
| Our Policy | We use these cautiously. | This is our preferred, standard approach. We “never give an outright option.” |
Key Benefits & Advantages of Using Options
Options are one of the most flexible tools in real estate. They can be:
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Private & Silent: Unrecorded and invisible to the market.
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Highly Leveraged: Control big assets with small money.
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Saleable & Assignable: You can often sell your position in the option contract itself for a profit.
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Low-Risk: Your worst-case scenario is the loss of the option money, not the entire property value.
When combined with a lease, they allow you to control the property’s cash flow, tax benefits, use, and occupancy without the full burdens of ownership.
Conclusion & Actionable Insight
The Strategic Takeaway:
Understanding the difference between a “True Option” (LPO) and a “Virtual Option” (LCO) is the difference between unnecessary risk and smart, protected investing.
For the investor/seller, the Lease & Contract for Option (LCO) structure is superior. It allows you to attract a buyer, secure a non-refundable deposit, and maintain maximum protection. If the buyer defaults, you regain possession via eviction, not foreclosure—saving you immense time, legal cost, and hassle.
Our Experience:
This “virtual option” framework is not a trick; it’s a fully disclosed, well-tested contract. We and our students have used it successfully for over 20 years and across thousands of transactions without a single instance where a defaulting party successfully claimed ownership rights and forced a foreclosure. The data supports its effectiveness.
Ready to Learn More?
This is just the beginning. To master the contracts and strategies for implementing these powerful techniques, explore the full training resources available at www.REISkills.com.
