Fix and Flip using and OPTION to buy real estate, possible?

[Tim Ivory]

Option - In legal language, a real estate option is an agreement that grants the party owning the option, the optionee, the exclusive, unrestricted, and irrevocable right to purchase property from the party selling the option, the optionor, during the specified period of time that the option is in effect.

I'm wondering if it is possible to control a house using an option to purchase in order to renovate the property (fix and flip) without actually buying the assett with a HML. Obviously the title doesn't change hands, and I do not believe there is any equitable interest in such a scenario (which also means one cannot market the property). However, as it seems most things concerning contracts are negotiable, is it possible to theoretically construct a deal like this, assuming the sellers agrees to it and it is written within the contract. Can the owner in this case, deed equitable interest or some other legal instrument to allow myself to actually not only make repairs on the property but only pay the owner after the house is repaired and the house is actually sold? Technically with an option, I would have the legal right to purchase the property at any moment. However, it all comes down to how much control I actually have in the property. Would I be allowed to perform repairs on the property? Would I be able to acquire a loan to cover the repairs on a such a property? If so, that would be quite powerful in that case.

[George Despotopoulos]

@Tim Ivory - 

You have a property you want to purchase. The purchase price is $150,000, you think it needs $40,000 in rehab, and you'll be able to flip it for $220,000. 

You go to a lender that has the following loan parameters for fix & flips: 90%LTC (90% of purchase, 100% of rehab costs), capped at 70% ARV.

You submit your numbers to this lender. Assuming the property and the numbers are deemed acceptable, the lender here would do $135,000 on $150,000 (90% LTC) and then the $40,000 for the rehab. Total loan amount in this scenario is $190,000. The ARV you provided is $220,000 and 70% of that is $154,000. So this wouldn't work. The lender would have to reduce the amount they fund on acquisition by $36,000. You would only qualify for $114,000 on $150,000, which is 76% LTC.

In the above, if your projected ARV was $280,000 (70% of ARV = $196,000) and the total loan amount of $190,000 would work.

I hope that clarified things. If not, I'm happy to get on a call to explain/answer any questions. I saw you pm'ed me, we can set up a time to speak that works on your end.