Signed an option with two prices in it because nobody knows the 2027 map yet

Who drafted the two-price option? That reads like something a real estate attorney wrote rather than a broker template, and I'd like to know roughly what that cost you, because I've been told a few times that legal on a small deal is where the budget goes to die.

Is your town anywhere near qualifying under the rural side of the new designations? The rural component in the 2027 round carries enhanced treatment, and if your tract is a candidate for that rather than a straight urban redesignation, the odds it makes the new map are a different conversation entirely. Small industrial town could go either way depending on how the tract is drawn.

I've been through this twice and I still want to check the basic piece. An option means you paid 24k for the right to buy, not any obligation to buy, so if the tract falls off the map you walk and you're out 24k and nothing else? That's what "non refundable, credited to price" means?

@juniper that's my understanding of the option itself, yes. The part I'd want @bramble to spell out is what happens to the 312k in the meantime. The property option and the gain reinvestment are on separate clocks, and walking away from a building doesn't undo an election you already made. Bramble, is the gain already in the fund entity, or is the plan to hold off until you know whether you're exercising?

Nobody has asked about the vacant building for 12 to 18 months. Vacant commercial insurance is a different product and it isn't cheap, and most carriers want documented inspections on a schedule. If you're not the owner during the option period that's the seller's problem, but if the roof fails in February 2027 it becomes yours the second you exercise. Did you get a condition walkthrough clause in the option or just a price?

Curious about the entity side. Is the fund just you, or did you bring anyone in? I've been trying to understand what the smallest workable version of one of these looks like when there's one investor and one property, because everything I read is written for pooled vehicles with an administrator.

Why did the seller say yes? Twelve months of carrying a vacant building for a 24k fee and a maybe seems like a bad trade unless something else was going on.

The 96k building allocation is the line I'd stress test. You and the seller agreeing on it in the contract is helpful, and it isn't the end of the matter if the numbers look far off what an appraiser or an assessor would say for a corner site in an industrial town. Did you get anything supporting it, a cost segregation opinion or even the assessor's own split, or is it just the two accountants shaking hands?

So if the tract drops off the 2027 map, is the deal dead or just worse? At 8.1 yield on cost with no tax benefit assumed, you said you'd exercise. That suggests the answer is you buy it anyway and the tax piece was never load bearing.

@quill that's how I read it too, and it's the strongest thing in the post.

Bramble, the zoning question. Two suites in a 4,400 foot shell, is that use by right under the current district or does it need a special permit? An option period is exactly when you find out that the parking count on a corner lot with no side yard doesn't work for the use you have in mind, and in some towns that review runs six months on its own. Zoning process and timing vary a lot by municipality, so I'd get the planner on the phone before February rather than after.

The lender piece bothers me more than the map piece. A term sheet that stops at December 2026 isn't a commitment, it's an opinion with a date on it. If you exercise in June 2027 you're arranging debt from scratch on a vacant building with a construction budget attached, and the appetite for that could be completely different by then. What's your fallback if the answer is no or the answer is 65 percent of cost instead of 75? Confirm whatever you think you have in writing with the lender before you rely on it.

@thatch's point about caps excluding sub labor matches what I've seen from the service side. The cap is only as good as the sub commitments behind it, and most GCs on a job this size haven't locked their subs at bid time.

Paying 24k to not have to decide for a year is the most sensible thing in this thread.

Basic question, sorry. When you say gain of 312k, is that the whole sale price of your business share or only the profit part? I've been assuming the two words meant the same thing and I don't think they do.

@rigging it's the profit part, the amount that would be taxed, not the gross proceeds. Which matters a lot here because the amount going into the project is the gain, and the rest of the money is just money.

Bramble, how did you find the site? Six months of looking and I have never once had a seller entertain anything other than a straight contract with a 30 day inspection period.

Trying to total the cash. 24k option, 240k or 262k at exercise, 610k construction. Call it 900k plus soft costs. What's your actual equity number after debt, and how much of the 312k does it absorb? If the gain only covers part of the equity you've got a mixed-basis situation in the fund and I'd want to know how your CPA is treating that before I signed anything, because it changes what the ten year treatment applies to.

The 8.4 versus 8.1 gap is 30 basis points for 22k, which is a cheap year of information. What I can't tell from the post is what happens to those numbers if construction comes back at 665k in the February re-bid @thatch is suggesting. That's 9 percent, roughly what he saw. My arithmetic says you land near 7.7 and your exercise test fails. So the real deadline isn't June 2027, it's whenever the GC gives you a fresh number.

@windlass has it, and I'd go further. 139 a foot on a gut of a single story commercial shell is a number you can hit if the slab is sound, the shell is dry and you're reusing the service. Change any one of those and you're at 170 fast. Bramble, what year is the building and has anyone been up on the roof and under the slab? On a 1960s or 70s shell in a small industrial town, the two things that have wrecked my budgets were an undersized electrical service and a slab that had to come out in sections for new underground plumbing. Neither shows up on a walkthrough. Both are five figures minimum.

If your GC bid without a plumbing camera and a look at the panel, that 610k is a hope with a decimal point.

I'm new to all this and mostly just lurking, and what I keep coming back to is that the tax program was maybe the fourth most important thing in the whole post. Is that normal or is bramble unusually disciplined about it?

@ember it's supposed to be normal and often isn't. The incentive improves a deal that already works. It can't carry one that doesn't, and the room here is full of people who learned that the expensive way.

Bramble, still curious about my earlier question on where the 312k is sitting right now and how that clock is being handled relative to a June 2027 exercise.

Did you record the option? Whether an unrecorded option gives you anything against a third party who buys the property out from under you depends on the recording statute in that state, and a few states treat it very differently. If it isn't recorded and the seller gets a better offer in April, you may find your remedy is a lawsuit rather than a building. I'd ask the attorney who drafted it that exact question in writing.

The allowance schedule is where this budget goes sideways. On a two suite fit-out the classic move is a GC carrying allowances for flooring, lighting and storefront glazing, then you pick anything above builder grade and the 4 percent cap is irrelevant because allowances aren't escalation, they're your choices. Ask for the allowance lines broken out as dollar amounts and see what's really fixed in that 610k. Last shell I did, 71k of the budget was allowances and we finished 38k over on them alone.