Options

[Angel Dejesus]

Help I don't get it. It is said that Donald trump invest mostly in option for real estate. That's how he became famous. Can some one break it down for me and explain it to me like I'm a 10 year old kid.

[Cal C.]

@Jon Holdman is correct and here is an example to illustrate.  You see a lot in an area of town that is zoned single family.  Currently it is worth $100,000, but you know if it is rezoned to commercial it would be worth $200,000.  You find the owner and offer them $5,000 as an option to buy the lot for $100,000 within six months ( like the price of the option the length of the option is negotiable).    They agree and you immediately set about getting the property rezoned. If you're successful at getting it rezoned commercial you pay the owner the other $95,000 to buy the property and then put it on the market for $200,000.  If you fail to rezone it before your six month option runs out the owner keeps your $5k and can now sell it to someone else, which they couldn't do while you held an option.