Using Your Vacant Land For Options

Darryl McCullough • September 5, 2018

It is not hard noticing the abundance of land parcels scattered around the landscapes of Canada and the U.S. Many of these locations may consist of farm and/or ranch land, forgotten or current non-economically viable development properties, remnant parcels, large hinterland acreage parcels, forests, old quarries, parcels with economically tired and nonfunctional buildings that haven’t sold for years etc.
It is interesting that many times, busy corporations or individuals will mention these mentally discarded lands only when they remember ownership of same, when the yearly tax bill arrives.

They also may be distinguished by old, rusted “For Sale” signs, barely hanging on their supports. A sure sign of “listing fatigue”. No takers. Just helping hold the world together.

HOW DO WE ACTIVATE THIS LAND?

First of all, perhaps a realistic appraisal by a reputable appraiser is probably a good start. In reality, the property may not be worth what was previously envisioned. A let down, but now a more realistic perspective.

If value can be agreed upon, the next focus can be on motivation, needs, and creation of a formula to direct where the equity could be re-directed. In the EQUITY FUNDAMENTALSsection, there are various articles allowing determinations from your personal and/or corporate entity goal setting.

IDEAS?

If financially capable, adding cash to a transaction and exchanging both your vacant land and cash for an equity in another property may be useful. Over the years, this formula has historically proven very advantageous for our clients, whether they are acquiring income properties, residential homes etc.

Another concept is to use your vacant land as an “Option Consideration” to acquire another property. This changes the landscape for the vacant land, now casting the personal and/or corporate entity as Buyers in the market. A reversal from a “sale only” mindset.

Let’s presume another equity is found that offers some sought after benefits. Use your vacant land as “Option Consideration” for the right to buy that new desired equity at some future time. For example, there may be an “Option Agreement” giving the right to acquire a certain improved building valued at, say, $1,000,000 using your $100,000 appraised “Vacant Land Parcel” as the “Option Consideration”. Upon signing the Option Agreement, the deed to your Vacant Land Parcel would transfer to the Improved Building Owner. There would be sufficient time to exercise the Option and, in most cases, receive credit at closing for the Option Consideration. If there was failure to close the Option Agreement, the Improved Building Owner would keep your Vacant land Parcel.

Why would the Improved Property Owner take the “Option Agreement”, and, more importantly, the “Option Consideration?” The Improved Property Owner may be able to use your $100,000 land to move again to another property, or use it for farming, create a land conservancy, or gift it to a charitable organization etc. In addition, the benefit of taking your land would include the anticipated $900,000 cash component.

Another variation is to not only offer your land as “Option Consideration”, but to couple that with a Lease Agreement.

WHAT IF?

What if the Option Consideration is coupled with the pledge to pay the Improved Property Owner’s real estate taxes? The Owner avoids paying taxes during the Option Period and all or a portion of the taxes paid may again be credited to the purchase. How many owners out there would love to have someone pay their taxes?

What if the Owner accepting the Option is elderly and wants to give your property to their heirs? They could give it directly to their grandchildren. There may be some gift giving tax advantages here as well, but again wise counsel is suggested.

More variations and additional options are openly available via further thought processes.

Remember. Ownership is important, but significant and often overlooked benefits of “control” of real estate can be just as valuable. Using otherwise dead or non-fashionable equities as consideration for an Option is a great opportunity. To this there are many add on complimentary formulas which can enhance the overall transaction.

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Reading and Thinking

By Darryl McCullough • July 2, 2019

Warren Buffet once said: “I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in business. I read and think. So, I do more reading and thinking, and make fewer impulse decisions than most people in business.” Oh, how I wish those words and actions were undertaken in an earlier life when the onward daily addiction of deal making was the first and foremost consideration! Going forward, it will be my pleasure to share, on occasion, real estate investment and development books, articles etc., from authors I know and have dealt with, and/or have alternative respect for and trust in. The first shared offering is a manual authored by mentor Virgil Opfer and Dan Harrison, entitled “ 100 EQUITY MARKETING FORMULAS ”, which is always kept by my desk. Each formula has a one-page explanation that further opens up my mind to solution-based ideas using non cash equities to create Cash and Cash Flow, Partnerships, Down Payments, Financing, Leasing, Options, using created Mortgages/Notes to acquire, sell, structure, etc. etc.

The G5 Partnership Concept

By Darryl McCullough • May 16, 2019

One of the true rewards of business travel outside our local geographical markets to attend meetings, marketing sessions, and symposiums is that we get a chance to reach out, meet and build relationships with like minded entrepreneurs ready to share their ideas, life experiences, and values. One extraordinary mentor to many of us is a long-time associate, Virgil Opfer. He has been a catalyst in sharing concepts and ideas that we all have readily been able to use back in our individual home markets. In upcoming articles, Virgil has graciously allowed me to share his knowledge on topics such as extended land development ideas, as well as a wonderful book he wrote outlining 100 Equity Marketing Formulas. Last month our article ventured into “Partnerships”. This month, Virgil has agreed to allow me to extend the Partnership dialogue by offering an article he wrote regarding a partnership structure that will surely activate creative minds and bring together complimentary skill sets. It is presented below, as written by Virgil, except for some very minor tweaking. I trust this article will be a benefit to the reader.

Partnerships

By Darryl McCullough • April 15, 2019

I remember a teaching moment during the 2008 recession that will forever be remembered. It involved a partnership discussion regarding a slow-moving large land development I had brought money to. My friend and long-term Managing Partner was Bill Stonaker who was apologizing for the slow movement in selling off pad sites, creating build-to-suits etc. that entailed this particular business plan. The Investor Partner quickly intervened with the following wisdom. Before investing, they independently reviewed project research and analysis presented including normal “Blue Sky”, “Most Likely”, and “Worst Case” profit scenarios; Even with best laid plans, due diligence, underwriting etc., history shows unknown future speed bumps occur that are ultimately viewed from the rear-view mirror instead of future proforma spread sheets; Saying that, the Investor Partner noted the number one reason for initially investing was because of Bill’s personal integrity, which was just as important as his well-known amortized development knowledge. Cash call assistance was then quickly offered out for any current or future perceived shortfalls needed at that particular point in time. No further questions asked! And, the project has ultimately proven to be an absolute "HOME RUN" for all investor partners.

The Application of The Interpretation

By Darryl McCullough • February 13, 2019

Over the last many months, we have stressed the power of creative formulas to move corporations and individuals forward in a thought process of increased benefits. This time we have decided to bring some fun into these equations. Below are incorporated different simultaneous fictional transactions, where increased benefit intention is emphasized. To this we also note the formulas used to accomplish these transactions. Many thanks to my long-time associate, mentor and friend, Steve Barker, whose consistent “Out of Box” creativity (some times with simplified pictorials) has helped many think through and finalize win-win beneficial “value added” transactions for all. Here we go.