Lease options. Understanding how they work.

An option is a “legal right or contract whereby a property owner sells a right to purchase his or her property to a prospective buyer at a predetermined price.”
Okay, enough of the legal-ese. Essentially, an option is the right to purchase something, without the obligation to do so. People have been using this concept for decades, and it has been called many different names, such as layaway or rain check. People will put a small amount of money down to have the item or items held for them.
With the ever-changing face of real estate, it was only natural for this concept to find its way into the market to help with frustrated buyers and sellers.
To help illustrate how an option works, and more importantly, how it can make money, let’s use a rain check for an example.
Not too long ago, a man was grocery shopping with his wife and saw that the store had a special on apple cider, the man’s favorite beverage. The normal price for a gallon of cider was $3.99, however, on sale, the price was only $1.50! Of course the man wanted to buy as much cider as he could. But to his dismay, when he got to the aisle where the cider was located, the store was out of stock on that sale item. So when he got to the checkout, he asked the checker for a rain check.
The rain check was filled out, and the following information was recorded; who the seller was (i.e., the store name and location), the product (i.e., the gallon-size apple cider), the purchaser, and the agreed price. It also had an expiration date.
The man now has an option to purchase the cider at the agreed price of $1.50 per gallon – as long as he does so before the expiration date. But how can he make money with it?
Well, a few days after acquiring the rain check, the man happened to overhear his boss at work complaining. The boss’ wife had called and reminded him of the Halloween party that night, and that he needed to stop at the grocery store and pick up 5 gallons of apple cider, and the boss just didn’t have the time to run to the store.
So the man volunteered, if the boss would give him the money for the cider, he would pick it up for him on his lunch break. The boss, knowing that the price of apple cider was $3.99 per gallon, handed him $25, and told him to keep the change for gas.
So the man goes to the store, and using his rain check, picked up 5 gallons of cider for $1.50 each, or $7.50. His total profit was $17.50! But take a look at his return on investment. His total investment in the transaction was 0! He didn’t pay for that rain check; he simply got it because he was at the right place at the right time. His return on investment was infinite – no investment but a handsome return!