Joe is an investor who is interested in acquiring a small income property in Manhasset (a suburb of New York City). This property is primarily an office building, but there are two separate retail spaces on the ground floor. Each of the office units in this building are currently being leased, but one of the two retail units has been vacant for the past two years. Also, the tenant in the other retail unit has been experiencing financial difficulties. In general, Manhasset appears to have a surplus of retail space, given that only 70% of the available retail space in Manhasset is currently occupied.

Additionally, Joe has been made aware that this office building may contain asbestos. Note that exposure to asbestos has been correlated to serious health problems, including cancer.

(a) What types of risk are associated with acquiring this income property?

(b) Instead of buying this income property, Joe decides to enter into a five-year purchase option for the building. What is the advantage to Joe of entering into this purchase option?

(c) If Joe decides to move ahead and purchase this income property in spite of the risk, what is something Joe can do to protect himself from suffering financial loss?