The name of the game in this business is to buy options on undervalued properties with immediate resale profit potential. And the only way to maximize a property’s profit potential is to put it to its most profitable use. That is why in this chapter I give you the lowdown on how you can use options to control properties that can be put to more profitable uses. Over the past 40 years, the U. S. economy has gone from a manufacturing base to a service and technological base. Today, we live in an age of rapidly changing technology where whole industries can be rendered obsolete overnight. This change in the American economy has resulted in a lot of structurally sound buildings that are functionally obsolete by today’s standard, and they are sitting vacant. And most Americans today are caught up in the notion that anything new is automatically better and superior to anything old.
So, when people with this mindset come across a property that has been vacant for an extended period of time, they just assume that there must be something wrong with the property. After all, why on earth would a piece of property sit vacant for a long time without attracting any offers to buy it? The truth is that many vacant buildings are relatively new and have a lot of years of use left in them. But we live in a society where people are accustomed to replacing things instead of repairing and reusing them. And this throwaway mentality has carried over into real estate as well. For example, how many times in your own town or city have you seen what appear to be perfectly sound buildings being torn down and replaced when they could have easily been put to another use?
As far as I am concerned, this is financial lunacy, when you consider that it is almost always much more cost-effective to buy an existing building that can be adapted for reuse than it is to go out and buy a piece of land and build a brand spanking new building from the ground up. And this is especially true today, given the shortages of building materials and the lack of qualified workers within the construction building trades. The fact of the matter is that when an existing building is put back into use, the property owner avoids all of the rigmarole that is part of the expensive and time-consuming new construction approval and building process, which can include:
1. Opposition from local antigrowth activists. 2. A long drawn-out building approval process. 3. Paying exorbitant building permit and impact fees. 4. Delays caused by shortages of critical building materials and inclement weather conditions. 5. A lack of qualified building contractors. 6. Construction cost overruns that can take years of appreciation in a property’s value to recoup.
Definition of 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 20 percent below the sale price of comparable properties in similar condition that have sold in the past six months, within a two-mile radius of the potential option property under consideration.”