Control With Option
How to Control a Property with an Option to Purchase
The Standard Option, Jack Miller & Peter Fortunato
An option to purchase is a contract by which a property owner agrees to give another party the privilege of buying the property at a specified price within a specified time. No obligation to purchase is imposed on the optionee [citation:6].
This is a unilateral contract. Only one party (the optionor) is bound to perform. When you exercise the option, it becomes a bilateral contract for sale, and both parties are bound to close [citation:6].
Key distinction: If both parties are obligated to perform, it’s a contract of sale. If only one party is obligated, it’s an option [citation:6].
The Standard Option: Key Components
Every option to purchase contains several essential elements [citation:2]:
| Element | Description |
|---|---|
| Grant | The optionor grants the optionee an exclusive and unilateral right to purchase |
| Option Term | The time period during which the option can be exercised |
| Option Price | The purchase price (or formula) for the property if the option is exercised |
| Option Consideration | The fee paid for the option itself — may or may not be credited toward purchase price |
| Exercise Procedure | The process for notifying the optionor of intent to purchase |
Source: Practical Law [citation:2]
How an Option Differs from a Standard Purchase Contract
An option can be created in several forms: as a distinct instrument (“Option in Gross”), within a lease, within a mortgage, within a will, or as a deed with a right of repurchase [citation:6].
Jack Miller: The Godfather of Creative Options
Jack Miller (1934-2009) was one of the pioneers of creative real estate investing. He bought, sold, leased, and managed hundreds of properties over 45 years and was one of the first to view single-family homes as investment vehicles rather than just places to live [citation:8].
Along with John Schaub and Peter Fortunato, Jack Miller helped create the foundation for most creative real estate training that exists today [citation:8].
Jack Miller’s Long-Term Option Strategy: A Case Study
One of Jack Miller’s most instructive option deals involved a couple who owned their home under a non-assumable 5%, 33-year Farm Home Loan. The loan required only 11 payments per year — the 12th payment was intended for property taxes. The homeowners thought the December “skip payment” was for Christmas presents and had ignored their taxes for several years [citation:1].
The situation: A delinquent tax certificate sale was scheduled. The homeowners wanted to stay in the house so their kids could finish school. The loan was non-assumable, and the property was far from Jack’s location [citation:1].
The solution: Jack agreed to pay their property tax bills for the next 10 years (approximately $5,000) in return for an option to buy the house for $1 plus taking title subject to the mortgage at the time their last child left school [citation:1].
The outcome: The homeowners continued making their subsidized 5% payments with high amortization. At the end of 10 years, Jack (or his assigns) had the right to exercise the option and buy the property at the then-existing loan balance — estimated at about $5,000. Jack secured the option with a mortgage to prevent liens from impairing his rights. His total cost over the entire period was approximately $11,000 [citation:1].
Lessons from Jack’s deal:
- Solve the seller’s problem (delinquent taxes, kids in school) to get favorable terms
- Use a long option term to let amortization work for you
- Secure the option with a mortgage to protect your position
- Keep total costs low while building substantial equity
Jack Miller’s Teaching Legacy
Jack Miller’s “Millionaire Maker” seminar in Las Vegas featured a powerhouse cast: Jack Miller, Peter Fortunato, and John Schaub. Over 800 attendees learned buying, negotiating, financing, and selling strategies from these three men who “taught themselves creative real estate strategies in the 70s, 80s, 90s and beyond” [citation:5][citation:8].
His teaching covered “six buying secrets that beat the street,” “six choices created by financing,” “five buyer financing techniques that sellers reverse,” and “making multiple forced offers to get results” [citation:5].
Peter Fortunato: The Deal Structuring Genius
Peter Fortunato is widely regarded as one of the most creative deal structurers in real estate. As one investor put it: “If you have never taken a class from him, or even heard him speak, you’re missing out because the way Pete thinks and puts deals together is like no one you will ever encounter” [citation:4].
Peter’s Philosophy: Property as a Bundle of Benefits
To Peter Fortunato, a house is not a single asset. Instead, it’s broken into different “benefits” that can be used together or brokered and traded individually [citation:4]. These benefits include:
- Amortization — the reduction of debt over time
- Use — the right to occupy or utilize the property
- Tax Benefits — depreciation, deductions, and deferral
- Management — control over the property’s operations
- Income — cash flow generated by the property
- Profits — gains from appreciation or sale
- Growth — long-term equity accumulation
Source: The Rome News-Tribune [citation:4]
By thinking of property this way, Peter can “help solve more problems for people, and thus accomplish more deals, than anyone I know” [citation:4].
Peter’s Approach to Options
Peter Fortunato teaches that options are a fundamental tool for controlling real estate. He emphasizes that “there are thousands of owners, builders, lenders and investors who’s uncomfortable circumstances can be improved when you offer an option to purchase their property” [citation:1].
His Creative Options Strategies workshops have been described as representing “almost a half a century of research and practical application” [citation:1].
Peter’s “Right to Purchase” terminology: Peter Fortunato, Jack Miller, and Bill Cook have all warned against using the term “option” when speaking with motivated sellers who are unfamiliar with creative deal structuring. Pete advises labeling option documents as “Right to Purchase” agreements to avoid confusion [citation:12].
When speaking to property owners, say: “a right to buy the property one day in the future.” [citation:12]
Peter on Freedom
Beyond deal structuring, Peter Fortunato is known for valuing the freedom real estate provides. He has said many times that real estate gave him the freedom to “interfere” with his children’s lives — because he didn’t have a 9-to-5 job, he could be present for school field trips and other activities [citation:4].
How to Structure Your Option to Purchase
Step 1: Identify the Seller’s Problem
Options work best when you solve a problem the seller has. Jack Miller’s tax delinquent deal is a perfect example — the seller needed tax relief and time for their kids to finish school [citation:1].
Step 2: Determine the Option Term
Options can be short-term (months) or long-term (years). Jack Miller’s deal used a 10-year option that allowed amortization to build equity [citation:1].
Step 3: Set the Option Price
The price can be fixed, tied to a formula (like the remaining loan balance), or set at $1 plus subject-to terms [citation:1].
Step 4: Pay Option Consideration
The option fee can be paid upfront, structured as tax payments over time, or credited toward the purchase price if exercised [citation:1].
Step 5: Secure the Option
Jack Miller secured his option with a mortgage to prevent liens from impairing his rights [citation:1]. This protects your position if the seller encounters financial trouble.
Step 6: Record a Memorandum
A memorandum of the option can be recorded to put third parties on notice of your right to purchase. This is often done to avoid revealing the purchase price while protecting your position [citation:9].
Option vs. Virtual Option: What’s the Difference?
| Feature | Standard Option | Virtual Option (Contingency-Based) |
|---|---|---|
| Legal Structure | Unilateral contract (option agreement) | Bilateral contract (purchase agreement with contingencies) |
| Upfront Cost | Option fee (often 2-5%) | Earnest money (can be minimal) |
| Exit Mechanism | Simply don’t exercise; option expires | Exercise a contingency and terminate |
| Assignment | Usually assignable unless prohibited | Requires “and/or assigns” language |
⚠️ Risk Warnings
Option Consideration: If you don’t exercise the option, you typically forfeit the option fee. Keep this amount manageable relative to the deal’s potential [citation:6].
Seller’s Liens: Liens or judgments against the seller can impair your option rights. Jack Miller secured his option with a mortgage to prevent this [citation:1].
Recording: Recording a memorandum of option puts third parties on notice but reveals your interest. Weigh privacy concerns against protection needs [citation:9].
Legal Compliance: Option laws vary by state. Always have a local real estate attorney review your option agreement.
Key Takeaways
- An option to purchase gives you the right but not the obligation to buy property at a set price within a set time [citation:6]
- Jack Miller pioneered long-term options that solve seller problems while building investor equity through amortization [citation:1]
- Peter Fortunato views property as a bundle of benefits (amortization, use, tax benefits, management, income, profits, growth) that can be traded individually [citation:4]
- Terminology matters: Use “Right to Purchase” instead of “Option” when speaking with unfamiliar sellers [citation:12]
- Secure your option with a mortgage or recorded memorandum to protect your position [citation:1][citation:9]
- Options can be long-term — Jack’s 10-year option turned a $5,000 tax payment into substantial equity [citation:1]
Ready to Master Options?
Learn how to structure option deals that control property with limited risk.
Disclaimer: This page is for educational and informational purposes only. It does not constitute legal advice. Option agreements are governed by state law and involve complex legal and tax considerations. Always consult a licensed real estate attorney and CPA before entering into any option agreement.
