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The 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 are:
1. Functional Obsolescence: Functional obsolescence occurs when a property losses value due to its architectural design, building style, size, outdated amenities, local economic conditions and changing technology.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 For example, some buildings have facades that include outdated awning type overhangs that can be removed to give the building a more modern appearance.
2. Economic Obsolescence: Economic obsolescence occurs 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 repair it.

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 eight.

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.

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