Turning Good Fortune
Into a Profitable Deal

Question: I have a trustworthy friend who owns a piece of property by a lake. He wants to get rid of it because he doesn't want to make the monthly mortgage payments anymore. I am not in a position to take a risk at this point -- my wife and I are saving to start a family -- but my friend is willing to sell the property for much less than its market value. An appraiser told him that it is worth $240,000, but he is willing to sell for $156,000.

Though I'd rather not buy the property myself, my friend said that I could keep any profit above $156,000 if I can find a buyer. I know this situation sounds too good to be true, but he is simply looking to rid himself of the land. I have the time to do this and once took a course on how to buy and resell real estate, but I'm afraid this approach might be too risky in this situation. What's the best way to turn this bit of good luck into a profitable situation?

-- Tony, city not provided

Tony: I believe in the old adage that says that if something appears too good to be true, it usually is!

As a first step, determine the actual market value of the property. Contact a local real-estate agent to have a comparative market analysis done. The agent will show you what comparable properties have sold for during the past six months to one year, so you should be able to tell what the land is worth. But because you are dealing with bare land, there may not be any comparable recent sales. If this is the case, you'll need to hire an appraiser, which could cost you several hundred dollars.

If the property is worth more than $200,000, as your friend says it is, and he is willing to sell to you for much less, the easiest way to go is to have your friend give you a six-month to one-year option to purchase the property for $156,000. This locks both of you into the price, and gives you the option, but not the obligation, to eventually complete the purchase.

You can then go out and try to find a buyer at a higher price. Once you find that buyer, enter into negotiations to sell. As part of the escrow process, your option will be exercised and your friend will receive his $156,000. The buyer will get the property at the higher price and you'll pocket the difference. Any good real-estate agent can help you handle this transaction.

With bare land, however, keep in mind that you could have a very difficult sell, regardless of the price. Remember that it is almost impossible to get outside financing on bare land and, unless you or your friend is willing to carry a mortgage, you'll need to find that very elusive all-cash buyer.

Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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