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