Ten Reasons to Use an Option Contract (11)

We make money in real estate investing first and then think about the tax consequences later. We are not keen on paying income taxes. Nor are we adverse to income tax planning. We would rather have the problem of making too much money as investors and then worrying about the income tax consequences than having a wonderful income tax planning strategy in place and worrying about not making any money.

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Ten Reasons to Use an Option Contract (9)

8. Handle Contingencies

We use an option contract when we know there are going to be contingencies that need to be handled as part of the purchase contract. What kind of contingencies are we talking about? Contingencies come in all shapes and sizes. Financing contingencies, money partner contingencies, zoning changes, termite inspections, geological inspections, earthquake insurance, fire insurance, roof inspections . . . The list goes on and on.

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Ten Reasons to Use an Option Contract (8)

Were we still in the prosperity phase of the real estate cycle, or were we headed into the recession phase? If the market was headed in a downward direction, we were not going to buy the property. If the market was headed in an upward direction, we would buy the property. We told you how we made money on this deal. But what if the market had turned?

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