Maximizing Investment: A Guide to Buying Options for Land Purchase
What did Olivia pay the landowner to obtain an option to buy the land?
How much did Olivia sell the option for?
Olivia's Option Purchase and Sale
Olivia paid the landowner $14,500 to obtain an option to buy the land.
Fourteen months after purchasing the option, Olivia sold it for $18,125.
Understanding Olivia's Transaction
Options are a valuable tool in real estate investment, allowing investors like Olivia to secure the right to purchase properties at a predetermined price within a specified period.
In this scenario, Olivia's initial investment of $14,500 enabled her to control the potential purchase of the land for $290,000 for the next four years.
After holding the option for fourteen months, Olivia decided to capitalize on the rising market value and sold the option for $18,125, realizing a gain of $3,625.
This gain represents Olivia's long-term capital gain, calculated as the sale price of the option minus the buying price of the option ($18,125 - $14,500 = $3,625).
By strategically leveraging options, Olivia was able to maximize her investment potential and secure a profitable outcome in the real estate market.