Turn an Average Commercial Real Estate Deal into a Great One

CI - Jason Hartman Rental Property Investing

Like the residential real estate market, the commercial property market went into free fall sometime in 2008, leaving the field wide open for investors to buy property at what amounts to deeply discounted prices. While Jason Hartman isn’t ready to declare commercial investing superior to residential (it really depends on your personal financial situation), if the parameters of the deal are good enough, you might want to consider pulling the trigger.

Which begs the question: What makes for a great commercial real estate deal?

Understand that Valuation is Different: Don’t walk into a potential commercial investment wearing your residential investor hat. With individual homes, you’re used to thinking of cash flow in terms of each unit, but when it comes to commercial investments, it’s all about the usable square footage. The bigger the building, the more income you can earn. It makes sense. A multi-family unit earns more than a single-family, and the economy of scale dictates that a sprawling shopping center can be leveraged into a higher monthly income.

Map the Facts: Famous fictional police detective Joe Friday only wanted to know the facts and so should you. Here are some critical parameters:

  • How much can you afford to pay? (Remember, most commercial lenders require 30 percent down)
  • How many tenants are on board and how long do their leases run?
  • How much rental space is left to fill?
  • How much monthly cash flow does the deal offer?

Retain Walk Away Power: Never put yourself in the position where you feel you absolutely MUST take a deal. Put another way, always retain the power to say, “no thanks,” and walk away. Along this same line of thinking, learn to analyze a property with a landowner’s eye. It is in your best interest to be able to spot what kind of damage is going to cost a mint to repair, and never, never take a deal that doesn’t make financial sense the day you buy it. Don’t be the poor sap who needs a change in the economic wind to turn a profit.

Learn Commercial Real Estate Metrics: Do you know what it means when someone mentions Net Operating Income (NOI), Cap Rate, or Cash on Cash? If not, consider it today’s homework assignment.

Last but certainly not least, always remember that the best deals around are those that involve motivated sellers. (Top image: Flickr | AJ Batac)

The Commercial Investing Center Team

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The Easiest Way to Earn Passive Income

Some may argue that nothing worthwhile comes easy. While this may be true, there’s still a wealth of products that claim how to get rich quickly.

Any successful commercial investor will tell you that getting rich quickly could never be further from the truth. What is legitimate however, is that rental properties are far more stable and progressive than other ventures or investments. While markets rock and shake through varied fiscal crises, everyone, despite their income levels—will always need a home. Despite someone’s living situation, whether it’s a single individual who values freedom and alone time, or multi-generation families who make ends meet collectively, one of the universal need for humans – is shelter.

As such, commercial investors are presenting a product that’s in-demand. Some products can additionally position themselves better than others, in terms of the value or lifestyle they provide. When it comes to real estate, value-added amenities are tools that can increase the total revenue made each year.

Many people start small, and then build up until a diverse portfolio is in place. Even a single family home can provide passive income as a stepping stone for buying more property – if it’s managed properly.

How Property Investors Receive Passive Income

Property investors receive passive income by collecting a lease payment each month. If the investor is paying a mortgage on the property, the home note and other expenses are deducted. What’s left from the payment is the investor’s to keep.

An investor who has paid the full price on a property out-of-pocket will receive more cash flow for the obvious reasons. However, not all beginner investors have the capital to do so. Not having all capital shouldn’t be a discouragement however, as many successful property entrepreneurs have utilized financing, while still retaining a sizable income. Over the course of 30 years or less, most mortgages would have been paid off in full, and the owners can then enjoy a retirement of passive income.

If you’re new to investing, real estate is one of the most successful paths to wealth. Just ask some of the wealthiest citizens out there.

Start small if you’re new, and also use the help of an expert, in order to avoid mistakes. Talk to other real estate investors, the successful ones that is. It’s wise to read different books, points of views, even listening to podcasts from experts like Jason Hartman on a drive home, can bulk up your intellectual muscles when it comes to savvy real estate investment. (Top image: Flickr |manyhighways)

The Commercial Investing Center Team


Making the Switch to Commercial Investing

The Commercial Investing ShowAt some point in the residential real estate investor’s career comes the urge to take on bigger game, and thoughts naturally turn to commercial investing. Immediate obstacles present themselves. The first is that lenders whom you’ve built relationships with at the smaller financial level of most residential purchases may not even do commercial lending, which leaves you in the uncomfortable position of finding new sources of financing for these larger buys.

The trouble with playing the residential income property investing game is that eventually you’ll hit the wall, and won’t allowed to take out more loans because to do so would fall “outside their lending parameters.”

Remember that real estate is a get rich slow approach. You need to make a decision in the beginning whether this is only going to be a job for you, or do you want to build an empire? An empire builder must think things through thoroughly on every single deal because bad deals slow down your ability to transition to commercial investing.

Get your finances in order.
Before making the leap to commercial investing, get your financial affairs in the proper order so that you can make it happen. If you need available cash, refinance as many residential properties as possible to allow yourself the capacity to move quickly when an appropriate property presents itself. Perhaps nothing is more frustrating than opportunity without the capacity to capitalize.

Identify potential deals.
While there is no one size fits all approach, you should develop a methodology that allows you to filter deals and arrive at the decision that it is a good deal for your needs. Factors to consider include how to place a legitimate value on the property, what your return on investment needs to be, and your borrowing power. If you don’t have it, and can’t borrow it, the best deal in the world doesn’t do you a bit of good. Learn to let it go if the deal doesn’t work. You should know by now that there will always be another on the horizon.

Lastly, before making an offer, don’t ask, “What is it worth?” but rather, “What is it worth to me?” That makes it a simple matter to submit an offer on your first commercial property. What is it worth to you? Figure out that number and don’t pay a single penny more.

The Commercial Investing Center Team

Commercial Investing Show

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