Tag: investment

Options

As a real estate investor assesses potential properties to acquire, when a good investment has been identified, what if an extended closing is preferred? In this case, an investor might use an option contract.

The option contract enables the investor – with an option contract, the investor becomes the optionee – to lock in purchase terms with the seller. The seller is the optionor. Negotiated terms in an option contract involve the sale price as well as a timeframe in which the closing will take place. 

Terms for the purchase are presented by the optionee to the optionor, accompanied by a dollar amount – consideration.

In order for the option contract to be effectuated, consideration is given by the optionee to the optionor. Consideration is comparable to an earnest money deposit, which accompanies a real estate contract of sale in a traditional purchase.

Once the option contract is in place, the optionee has secured his or her option to purchase the home. According to terms set forth in the option contract.

The optionor can’t sell the property to another buyer. The optionor can’t enter into another option agreement with another optionee. While the optionee is not obligated to follow through and complete the purchase of the home. The optionee has an option.

Within the option period, the optionee lines up his or her financing. The optionee obtains cost estimates to renovate the home. The optionee coordinates the appraisal and inspections.

As per inspections, the optionee may want to order a tank sweep. 

A tank sweep will show the optionee whether there is an underground storage tank – a UST.

An OPRA request can be forwarded by the optionee to the township. An OPRA request could enable the optionee to obtain public records pertaining to the home.

Environmental concerns…

Let’s say a UST has been discovered. The Environmental Protection Agency does not necesssrily regulate underground tanks for residential homes. 

By definition, a UST is a tank whereby a minimum of 10% of the piping is located underground. For UST’s with storage capacity of less than 110 gallons, these fall outside federal oversight. Although states and municipalities often institute their own policies for UST’s. 

Storage tanks installed in the 1980’s – and prior to the 1980’s – were constructed with steel. Over time steel corrodes. If corrosion occurs with a steel UST, oil could leak. With an oil leak, you run the possibility of contaminating not only the subject property, but the surrounding area as well. Oil could seep into soil. And water sources too. These represent environmental hazards.

Within the due diligence phase of an option contract, as home inspections are conducted, in the event that a UST has been discovered by way of a tank sweep or an OPRA request, the option continues. While the execution of the option could be put on hold. 

Let’s assume local home values increase during the option period. While discovery of the UST negatively affects the home’s value.

One “plus” – increasing home values – and one “minus” – the UST.

When the optionee obtains financing, the home becomes the lender’s collateral. The UST will lower the market value of the home. Adversely affecting the lender’s collateral. 

The UST affects marketability. The UST culminates in a lower appraisal value. The reduced appraisal value affects loan to value. Which, in effect, affects loan terms. 

The optionee’s lender may want to get a Phase 1 Site Assessment. A Phase 1 details environmental conditions. The lender would likely schedule a Phase I prior to issuing the loan commitment.

Discoveries arrived at by the optionee during the due diligence phase through inspections – such as a discovery of a UST – could determine whether the optionee elects to follow through on the option they have to purchase the home.

Land banks in New York…it’s working


There are just about 4 million total residential homes in state of New York. So, with all of the upheaval in our real estate business today – the NAR settlement, changes to buyers agency compensation, high mortgage rates, increased competition, limited inventory…among all of the other “normal” business challenges in real estate – if one is looking for a unique real estate specialty to consider focusing their efforts upon, as we head into 2025, here is something to consider…

Thirteen years after New York’s Land Bank Law went into effect, there are still in excess of, somewhere in the neighborhood of, 40,000 vacant residential homes situated within municipalities throughout The Empire State.

Two general truths…

Truth “A”:  a land bank has procedures available to the land bank which enable the land bank to acquire vacant and abandoned properties. 

Truth “B”:  Developers look for opportunities to acquire, then, to redevelop, properties.

Once redeveloped, and thus, in turn, once transitioned from its former status as a “non-performing” property to a new status – “performing” property – that property can be sold. Thus, returning what once had been a neighborhood liability to the community…coupled to a handsome, new classification: performing property. A community asset. A property which has now been added onto the municipality’s property tax roll.

As such, performing properties create newly-found property tax revenue for municipalities. Additional property tax revenue – now coming into the coffers of municipalities – ease budgetary constraints municipalities face.

Through New York’s Land Bank Law, in The Empire State, a New York municipality possesses the ability to create their own land bank. By establishing a land bank, resources, direction, vision, personnel – coupled to leveraged capital – enable New York redevelopment to take place. In essence, New York land banks create passageways whereby, as this passageway is followed, adverse conditions attributed to non-performing properties which are nestled, often times, for far too, too long, within New York State tax districts…are lessened.


The New York Land Bank Law was signed by Governor Cuomo on July 29,2011. New York’s first land bank was established the following year.. in 2012. Today, there are over 30 land banks in operation in New York State.

Here are some regional New York land bank statistics to think about. These are local land bank statistics…taken from the area of New York State where Josh Allen plays quarterback. And, albeit, as a KC Chiefs fan, I must say, he plays QB pretty darn excellently up there too:

A. 230 properties acquired

B. 44 renovations completed

C. $2.4 million in assessed Values returned to communities

D. $14 million in leveraged investment

Should a portion of the blame for our housing shortage be placed upon sales managers?

In an environment which is accompanied by elevated interest rates, hopeful home buyers are challenged by housing affordability (or a lack thereof). But the real problem is not found in interest rates. The real problem is found in inflation. Housing inflation, to be more specific.

Housing inflation, linked to the fact that, we just don’t build (or rehab) enough homes. Every year. Year after year. Same problem. So, in real estate, is it wise to simply recruit more salespeople to follow the same business model? To attain the same outcome?

What is the real sales challenge to solve? Add more homes to the market. Every year. Year after year. Meet demand.

A noted portion of homes which could be/should be added to the market each year will come through, 1) rehabbing more homes, and 2) building more new homes.

An industrywide over-reliance which is placed upon selling move-in ready homes, coupled to a lack of prioritization – and/or specialization – in creating additional housing stock is arguably a “sales management C-minus,” or a “sales management D.”

Don’t blame Jerome Powell. Our housing challenge is, in many ways, about sales management deficiencies. A lack of leadership in sales. Which, in my opinion, functions as one primary contributor to our ongoing national housing challenge. Inefficient sales management in real estate makes Jerome Powell’s tough job even tougher.

Creating more inventory is the solution. Ignoring processes which will lead to the creation of more inventory further contributes to housing inflation. To fewer sales. To less commission. And, quite possibly, to the underutilization of capable real estate professionals.