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