Most Profitable Types Of Properties To Buy Real Estate Options On
When searching for
properties to buy real estate options on, concentrate all of your efforts on
identifying, locating and contacting the property owners in your area who are
most likely to sell you a real estate option on their property. In most areas,
this means honing in on “problem property” owners. Why this particular type
of owner? Because in most cases, they're the ones who'll provide you with the
most opportunities to buy low-cost real estate options on properties that you
can purchase at below market prices. If you follow the advice I'm giving you
here, you'll be able to find profitable option properties in half the time that
it’ll take most other people who haven’t read this article. However, if you
completely ignore what I’ve just told you to do, and instead look for
properties to buy options on in the usual helter-skelter fashion employed by
most people, you'll more than likely come up empty-handed. And all you'll have
done is squandered away your valuable time and money.
Why Properties With Curable Obsolescent Flaws Make Ideal Option Properties
From my experiences and
observations, small, vacant commercial properties with obsolescent flaws that
are economically feasible to cure, are potentially the most profitable type of
properties to buy real estate options on. That’s because many small, vacant,
obsolescent commercial properties:
1. Can often be bought at purchase prices that are twenty percent or more
below replacement cost.
2. Have owners who are more willing to sell low-cost real estate options.
3. Are generally off the “radar screens” of corporate and
institutional real estate investors.
4. Scare-off most conventional real estate investors.
5. Offer more opportunities to realize immediate resale profits.
The Three Types Of Obsolescent Flaws That Cause Properties To Lose Value
The three types of obsolescent flaws that cause properties to lose value
obsolescence occurs when a property losses value due to its architectural design, building
style, size, outdated amenities, local economic conditions and changing
technology. Look for properties with design features that would be relatively
easy to upgrade or replace. For example, some buildings have facades that
include outdated awning type overhangs that can be removed to give the building
a more modern appearance.
when a property losses
value because of external factors such as local traffic pattern changes or the
construction of public “nuisance” type properties and utilities such as
county jails and sewer treatment plants on adjoining property. Seek out vacant,
but structurally sound properties that adjoin less desirable nuisance type
properties. As an example, a vacant warehouse located next to a sewage treatment
plant that could be used by a manufacturer to store non-hazardous materials in.
3. Physical obsolescence: Physical obsolescence
occurs when a
property losses value due to gross mismanagement and physical neglect
resulting in deferred maintenance that’s usually too costly to repair. Search
for properties with only minor structural problems that can be corrected at a
cost that’s below the property’s replacement cost. In other words, don’t
buy a real estate option on a property that is deemed to be physically
obsolescent, if it can be rebuilt from scratch for less than it would cost to
What’s An Undervalued Property With Immediate Resale Profit Potential?
For the purpose of buying a real estate option, I define an undervalued
property with immediate resale profit potential as any property that can be
purchased for at least twenty percent below “book value,” or the sale prices
of comparable properties in similar condition, that have sold in the past six
months within a two-mile radius of the property under consideration for
purchase. However, the scenario that I’ve just described is under ideal market
conditions that hardly ever exist. Depending upon the size of your local real
estate market, the amount of sales activity, and the type of property, you may
have a very hard time finding any recent comparable sales within the vicinity of
the property that you’re interested in buying. In most situations, you’ll
have to really search your local property tax rolls to find recent sales data.
Especially when the property under consideration is a unique, one-of-a-kind type
of property like an underground missile silo, or a very specialized
industry-specific commercial building. How to estimate the current market value
of a potentially profitable option property is covered in full detail in chapter
Look For Properties With All Of The Telltale Signs Of Blatant Neglect
How do you go about spotting undervalued problem properties with immediate
resale profit potential? It's really not that hard to do once you know exactly
what to look for. Probably the easiest and quickest way is to simply look for
properties exhibiting any of the following telltale signs of gross mismanagement
and blatant neglect. Properties that have:
1. Trash-strewn grounds.
2. Overgrown landscaping.
3. Graffiti covered walls.
4. Broken windows.
5. Missing doors.
6. Peeling paint.
7. Leaky roofs.
8. Overgrown parking areas.
Look For Properties With Problems That Scare-Off Most Conventional Investors
Look for problem properties which scare-off most conventional real estate
investors. These are properties with correctable problems that appear to be
complicated and usually require some sort of specialized knowledge in order to
be solved. However, in most cases, it’s the common misperception of how
difficult the problem is to solve, than the actual problem that scares-off most
conventional real estate investors. For example, I specialize in buying straight
real estate options on small, vacant, condemned commercial properties that are
structurally sound, but in dire need of an industrial-strength cleaning. Most
conventional investors are instantly turned-off by this type of property simply
because of their outward appearance which generally looks far worse than their
actual physical condition. They can’t see beyond the filth and grime that can
be easily washed off with a pressure-washer, and the smelly garbage and
accumulation of junk that can be inexpensively hauled away. However, what scares
most conventional investors more than the sight and smell of a condemned
property, is the very thought of having to deal with the local governmental
bureaucracy in order to bring the property into compliance so that a certificate
of occupancy can be issued to the property owner. Fact is I’ve never had a
problem with any government agency regarding the turnaround of a condemned
property! That’s because, before I ever buy a real estate option on a
condemned property, I first meet with the local code enforcement inspection
supervisor who’s responsible for the area where the property is located. I do
this to go over the code violation inspection citations to find out the bare
minimum that needs to be done in order to bring the property into compliance.
This way, I know exactly what needs to be done, and have a ballpark idea of the
cost to do it. And, I never try and bullshot code enforcement inspectors; I
always do what I promise to do when I promise to do it!
Thomas J. Lucier
is the President and CEO of Home Equities Corp, a
privately held Florida Corporation established in 1995, that specializes in the
purchase, fast-turnaround and resale of small residential rental properties in
the Tampa Bay Area.