Commercial real estate is a dynamic industry because there are extensive investment strategies to explore. There are at least three different lease options, several property types, and extensive arrangements you can use to improve profitability. ‘Option to buy’ is one such arrangement and is a common strategy in commercial real estate.

Your familiarity with the term depends on your experience in commercial real estate or your exposure to options trading. Therefore, don’t worry if you don’t know what it means. The purpose of this blog is to give you that explanation and explore its applications.

What Is an ‘Option to Buy’ in Commercial Real Estate?

An ‘option to buy’ in commercial real estate is a contractual arrangement that gives an investor the exclusive right to purchase a property for a fixed price within a specified time frame. This contraction arrangement typically purchased in exchange for a cost is called ‘an option.’

The assigned time frame typically ranges between several weeks and a few months. The core purpose of such a contract is to allow the buyer to prepare funds and make purchase arrangements without risk of losing the chance to purchase to other buyers.

It also gives the option holder security because the contract ensures capital inflow within a specific period.

Is ‘Option to Buy’ a Beneficial Arrangement for Investment?

As mentioned above, the ‘option to buy has a specific purpose.

For Investors

If you are an investor, you should opt for an ‘option to buy arrangement if the property you want is sought after. The contract will give you the exclusive right to purchase, preventing the seller from offering it to another buyer while arranging the funds.

Another scenario in which you can consider such an arrangement is if you or your commercial real estate broker are confident that the property’s price will increase in the near future. By entering the ‘option to buy a contract with a fixed cost, you will be able to purchase the property at an agreed-upon price, even if the market value increases.

For Sellers

As a seller, the best reason for signing an ‘option to buy contract is that it secures capital. The time frames are relatively short, so you will not need to wait too long to get the funds from the property sale.

Another scenario that will make this arrangement beneficial for you is when you know the property value will drop due to market movements. The fixed price mentioned on the contract will allow you to sell the property at the agreed-upon price, preventing loss.

Wrapping Up

Overall, ‘option to buy is a strategic contractual arrangement in commercial real estate that benefits either or both parties. It allows the buyer and seller to enter a purchase contract for a time set in the near future, securing their interests.

Please reach out to the CHRE team to invest in commercial real estate. We will assess properties and help you find the most suitable ones for your portfolio.