Real Estate Investing: Insights on Commercial Property Deals
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Across the country, commercial real estate space has never been hotter. Property prices are booming, and so is demand for office space. If you’re planning on entering the commercial real estate space as a landlord, your timing couldn’t be better. You have everything from the cash flow advantage of long-term leases to the economies of scale working in your favor.
Yet, this is not to be taken to mean that you couldn’t make a bad move. In fact, it’s when the market booms that low value properties on the fringes tend to sell at respectable prices. Sometimes, these prices fool even the experts into seeing promise where there is none. If you are to make a success of yourself, you need to learn the ropes, and to tell a good deal part from a poor one.
Know the difference between residential and commercial real estate
The purchase value and rental value of residential properties are determined not only by location and the usable space available, but also by floor plan, the availability of a garden, and amenities nearby. Location may be important in commercial property deals. Prices are mostly determined by the amount of usable space available, though.
The buying process tends to be different for commercial property, as well. Lenders who specialize in commercial property loans expect larger down payments. Anything from 30% to 40% is usual. You need to go in prepared.
Learn to look for a motivated seller
Sellers who really need to unload their property for whatever reason are likely to give you an easier time at the negotiating table. They are likely agree to selling below market value if it helps them quickly find a buyer. The trick to a great deal, then, is often learning where to look for these sellers.
Finding a seller who lives far away or lives overseas, is one way. Such sellers are often tired of managing their property from a distance, and look for a way out. It can also help to join a social media group for real estate investors. You’ll likely to find plenty of tip-offs pointing you towards motivated sellers. Some aggressive commercial property investors will go so far as to scan the obituaries every single day to find out who’s died and what properties they may have left behind. You can’t be a success if you just stick to the easy ways of coming by a deal. You need to truly commit to it.
Learn how to negotiate
If you want to make a success of the deal, you need to learn the rules. While it does make sense to hire an aggressive and motivated real estate agent or lawyer, you can never be sure that you have the right professional on your side unless you know something about negotiating yourself.
It can make sense to take a few real estate classes that allow you to watch real estate agents at work. It can also help to truly learn the language of these negotiations. Learn terms like cap rate, net operating income and cash-on-cash. If you want to enter the commercial real estate business, you need to be able to speak the language.
Build game plans
You need to go in with detailed game plans. You’ll need to have specific points in mind to apply pressure to, and you’ll need to know how to put on a convincing act. It can take a great deal of practice to pull it off. Here are the three most effective pressure points:
Time: It may be a worn-out trick to tell the other party that you need to close in the next few days; somehow, though, it tends to work. You do need to come up with a believable story for the pressure, though. The longer you have the other party involved in the negotiations, the more likely it is that they will begin to want to get you to sign.
Information: The party with the most information is likely to be successful bringing pressure to bear. You need to learn as much about the property as possible, hiring a top real estate agent if necessary (find out how to gain new info from Andrew Reeves or similarly competent agents). You also need to ask tough questions, not worrying about offending the seller. You gain power when you ask such questions, because it puts the other party on the defensive.
Be prepared to walk away: You can’t allow yourself to fall in love with the property. It will show. You need to be a hard-nosed businessman, and care nothing about what happens to the deal unless you get to have your way. It will show, and it will push the seller over the edge.
Learning to be a successful negotiator can take a lifetime of learning. Those who manage the art do very well.
Photo courtesy of: PublicDomainPictures
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