D. Murali

A real estate option grants the party owning the option, the optionee, the exclusive, unrestricted, and irrevocable right to purchase property from the party selling the option, the optioner, during the specified period of time that the real estate option is in effect.

Thus defines Thomas J. Lucier in "How to Make Money with Real Estate Options," from Wiley (www. wiley.com). He then lists `twenty-four good reasons' why you should buy options instead of properties.

"Savvy investors can use real estate options to provide just-in-time property," points out Lucier. "All they need to do is to find a particular type of property that is in demand in their local real estate market and then use a real estate option to gain control of a piece of property that fits the bill. Then they flip the option to an end user or buyer who has a need for the property."

But deals aren't going to be "served up to you on a silver platter by eager sellers and real estate brokers", reminds the author. Unlike conventional real estate transactions, which usually involve properties that have been heavily advertised over a period of time, the most profitable types of properties to buy options are not generally advertised as being for sale, points out Lucier. Don't be surprised if you find such properties vacant, and "in a dirty, neglected, run-down condition"!

A tip that the book offers to potential real estate option investors is about the importance of visualising the potential uses of a property, or what is known as `adaptive reuse'. Try seeing, therefore, a vacant petrol bunk as usable for a pizza parlour, plant nursery, repair shop or a set of small office suites, and Lucier would tell you how he made a neat $18,000 profit from a "condemned mom and pop-type convenience store that had been involved in a fire"!

He identifies seven most profitable types of properties that are "well below the radar screens of the so-called big guy investors". These include "small mismanaged rental properties that can be turned around", and "properties with correctable problems that make them non-marketable".

For the former, you may need to give the property "a cosmetic facelift" and implement "aggressive professional property management practices". As for the latter, the author is optimistic that problems such as of title, ownership, vacancy, maintenance, structure and code violation can be corrected. Think of `rezoning' to add value, advises Lucier.

"A single-family house that can be rezoned for use as a professional office has a lot more profit potential than a house that can be used only as a residential property," because of the rental differential. Ever heard of `stigmatised property'? It is defined by the National Association of Realtors as "a property that has been psychologically impacted by an event, which occurred or was suspected to have occurred on the property, such event being one that has no physical impact of any kind". Such properties may be in flawless condition, reminds the author; only, they have become tainted because they were the site of crimes or accidental deaths, or `ghost' movements! What can be grimmer is that more than 51 per cent of those who start off as real estate investors fail. Lucier lists 20 reasons such as paying above market value of property, lack of persistence, failure to act in a timely manner, lack of capital and credit, bad advice from unreliable sources, unrealistic expectations, lack of patience, and failure to perform due diligence inspections.

If you want to know how due diligence is performed, there is a whole chapter to answer your question.

Due diligence is the care that a reasonable prudent person exercises in the examination and evaluation of risks affecting a business transaction, defines Lucier, and guides you in the use of the Net to gather info about the property.

Try to know as much as possible about the property owner too. Include in your checklist searches of property records, tax, comparable sales, flood zone map, code violation and so on. Liens are of many types, and the trade has its own jargon, please note.

Hire an experienced title researcher to screen the title, and double-check every potential buy.

Learn `the four key functions of property management' in just as many words: select, collect, maintain, and administer. That is, "Select the best qualified tenant applicants available. Collect rental payments on the day they are due, or initiate eviction proceedings.

Maintain the property in an efficient, clean, safe, and cost-effective manner. Administer accurate income, expense, tenant, property, and tax records." And, to stay in profit heaven, there are "six steps you must follow to avoid renting to the proverbial tenant from hell"! The chapter on `how to thoroughly inspect a property' handholds you through more than a dozen ready templates on topics ranging from exterior to bedroom, from attic to garage.

What follows then is help on accurately estimating a property's current market value.

`Real' value, worth chasing!

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BookValue@TheHindu.co.in

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