To gain maximum leverage when using real estate options and to avoid having all of your working capital tied up in real estate option fees, I recommend that you never pay more than 5 percent of a property's current market value for a real estate option. For example, on a property with a current market value of $250,000, you should never pay more than $12,500 for a one-year real estate option. In fact, I probably would not offer more than $10,000 for a one-year option on a property worth $250,000. And to reiterate what I told you at the beginning of this chapter, the amount that you wind up paying for a real estate option usually depends more on your skills as a negotiator than on the actual value of the property you are buying the option on. Depending on the condition of the property and the owner's circumstances, I usually start the price for a real estate option at $5,000 and increase it in $500 increments until I buy the option or cease negotiations.
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