You may have heard that options are the perfect way to increase profits on real estate investments and rentals. Well, perfect is probably an overstatement, but good profits are available when you know what you are doing.

The stand-alone purchase option can produce nothing but profit. In this type of option, you receive cash from a person who wants the right to buy your property at a certain price over a certain period of time. So, on the day you grant the option, you receive your cash.

If the person who pays for the option allows the option to lapse, you have both the cash and your property. If the option is exercised, you have sold your property, and generally the option price creates a selling-price bonus for you.

Of course, if you are the one paying for the option, you want it structured so that you get a reward when you exercise the option. One of the most desirable rewards is to pay less to buy the property because you used the option.

The general financial purpose of the lease with option to buy is to increase profits by

charging a higher rent (probably applying some of the premium rent to the option amount);

requiring some up-front option cash (remember, this is your cash, immediately);

requiring the tenant to maintain the property in excellent condition, in some cases doing all of the repairs;

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