| Getting Control of the Property | | | | section of a standard real estate contract. This is |
| We've been discussing the process of assembling | | | | very important to your "survival" as the |
| groups of investors for the purpose of acquiring | | | | Syndicator. It is this ability to assign your purchase |
| income producing commercial real estate. As we | | | | rights under the contract to the LLC that gives |
| move to getting the property into escrow so that | | | | you an opportunity for ownership in the group |
| you can verify its suitability for investment, we | | | | investment. |
| need to look at keeping control of the property | | | | As a practical matter though, Sellers can get |
| for sufficient time to complete your investigation. | | | | uncomfortable with lots of contingencies that |
| Your goal is to control the property without | | | | have long removal periods and may wait for a |
| risking any of your money. The Seller's goal is to | | | | faster buyer. An acceptable alternative is the use |
| extract as much money as possible from you as | | | | of an Option to Purchase. The Option gives the |
| quickly as possible to tie you to his property. So | | | | option holder (you) an irrevocable right to |
| how do you structure your purchase contract to | | | | purchase the property in the time period specified |
| maximize your time while minimizing your | | | | in the option. Options also tend to be less |
| exposure? Using well structured contingencies is | | | | "expensive" that escrow deposits since no one is |
| the answer. | | | | getting tied up in purchase contract. The downside |
| As the Syndicator of group investment, you need | | | | for you is that your option payment is |
| to perform a Due Diligence investigation of the | | | | non-refundable. If you don't purchase the |
| property. This is essentially a verification of the | | | | property, your option payment (called "option |
| statements made by the Seller as to the | | | | money") is gone. |
| condition of the property, the status of the | | | | Options can range from a week to a year, |
| leases, the history of income and expenses, the | | | | although most fall into a 3 to 6 month period. It is |
| state of title, the existence of natural and | | | | also possible to pay a small amount of money for |
| man-made hazards, and anything else that can | | | | a shorter period, say a month, in what is often |
| affect the value of the property. It is acceptable | | | | termed a "free look." Why it's called a "free" look |
| to make your purchase (and your deposit) | | | | when you're paying a few hundred dollars for it is |
| subject to your approval of all of these conditions. | | | | one of those time-honored industry oxymoron's, |
| Stating these conditions in your purchase contract | | | | but it probably relates to the relatively small |
| turns them into contingencies, since your | | | | amount of money for the short term option |
| completing the purchase is contingent upon | | | | compared to the longer term ones. |
| accepting the all of this information as stated by | | | | Realistically, you would want to structure your |
| the Seller. | | | | option to have an extension period if you discover |
| There are two "special" contingencies you'll want in | | | | you want the property. Of course, you'd need to |
| your purchase offer when you are creating a | | | | pay more money with each extension. Even when |
| group investment. The first one is that you can | | | | using an option, you'll still want to have your |
| cancel the transaction if you cannot fully subscribe | | | | contingencies in place when you submit the |
| your investment group in a specific period of time. | | | | purchase contract. The difference is that you'll |
| Basically, if you fail to raise the money in time, | | | | have less time in which to approve of them. |
| the transaction is canceled and you get your | | | | So now you have the two methods in which you |
| deposit back. | | | | can control a potential investment property for |
| The second is to allow you to vest the property | | | | sufficient time to complete your investigation and |
| in another name. This might be something as | | | | raise the money with which to purchase it. Good |
| simple as "John Doe or assignee" in the Purchaser | | | | hunting! |