I rom what I have seen over the years, buying options on overpriced properties is the number one reason many people fail to make it in the real estate option investment business. And for most beginning option investors, overestimating the value of their first option property usually proves to be a very costly and often a fatal mistake, which generally marks the beginning of the end of their foray of investing in real estate options. You must understand that when you assign or sell a real estate option to a third party, what you are really selling is the property under option. This means that if the property under option has a purchase price that is right at or above market value, it will be nearly impossible to find anyone willing to buy your real estate option. I know an investor in Las Vegas, Nevada, who learned this lesson the hard way when he bought a one-year option for $10,000 on a former gas station, which had been sitting vacant for two years. This neophyte investor overestimated the property's current market value by $40,000. The way that this guy explained his big-time blunder to me in an e-mail message was that he never bothered to verify the owner's claim that the underground tanks were in tip-top shape and that everything was just hunky-dory. This very naïve rookie had bought the option under the wrongful assumption that he could just turn around and resell the property as a ready-to-go gas station. This guy got a real wakeup call when a prospective buyer's preliminary due diligence turned up a Nevada Department of Environmental Protection leaking tank list with the property on it. According to this guy's e-mail, the investor who found out about the leaky storage tanks waited until his option expired and bought the property from the unscrupulous owner for $60,000 below his purchase price.
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