Buy Real Estate Options at Prices 5 Percent or Less of the Propertys Value

To gain maximum leverage when using real estate options and to avoid having all of your working capital tied up in real estate option fees, I recommend that you never pay more than 5 percent of a property's current market value for a real estate option. For example, on a property with a current market value of $250,000, you should never pay more than $12,500 for a one-year real estate option. In fact, I probably would not offer more than $10,000 for a one-year option on a property worth $250,000. And to reiterate what I told you at the beginning of this chapter, the amount that you wind up paying for a real estate option usually depends more on your skills as a negotiator than on the actual value of the property you are buying the option on. Depending on the condition of the property and the owner's circumstances, I usually start the price for a real estate option at $5,000 and increase it in $500 increments until I buy the option or cease negotiations.

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