If you talk to any real estate professional who has invested in both residential and commercial real estate, you will find out that many of them will think that the better deal is the commercial real estate. People who invest in commercial real estate love the bigger payoffs they don’t get with residential real estate investments.
However, many people wanting to get into commercial real estate investments wonder: How do you determine which properties are a great deal? How do you separate the good deals from the duds?
The following are 7 tips from the experts on how to determine if you are going to get a great deal in the real estate market or if you have found a dud of a deal:
Learn What Insiders Already Know
This involves some studying and some so that you can learn to think like a real estate professional. You must understand how differently the commercial real estate property is and how it is different from residential real estate. For commercial real estate properties, you will need to put at least 30% down on the property. In return you will see better cash returns on your investments when you are investing in commercial over residential real estate. This means you will have to go into deals with cash in hand. On the other hand, the returns on cash flow will be much greater on commercial investments than residential ones.
Map Out Your Plan of Action
Set up the parameters you will operate under. Determine how much money you can afford to spend and how far you are willing to go in negotiations before you walk away. Set your boundaries and stick to them so you don’t find yourself in a situation where you cannot afford to pay the investments you take on.
Learn to Recognize When You See a Good Deal
You will have to determine which of the deals that you are contacted about are good deals versus those that you can pass on. Understand which properties have damage done to them and what it will cost to fix these issues before you can rent the commercial properties out to businesses or other entities to create a cash flow. If you will have to spend more money than you have or it will take a long time to recoup your money via cash flow when the building is ready to rent out it may be a property to pass on.
Get Familiar with Key Commercial Real Estate Metrics
Understanding the “commercial real estate metrics” and the terms are used throughout the real estate market. Some of these terms include net operating income (NOI), cap rate, cash on cash, etc. Knowing these terms and how they impact they have on the industry can help you understand the industry and how to operate in it wisely as possible.
Look for Motivated Sellers
Sellers who are motivated to move properties are the ones who are more likely to make good deals that will help you stay within your budget while still getting the properties you need to start your business. Those who sell below market value provide you with a chance to make more money on your investment when you sell the property at or above market value in the future.
Go “Neighborhood” Farming
Neighborhood “farming” sounds like a crazy term but going through the neighborhoods in the area to scope out “up and coming” investments that will help you get a good return on your investment. Talking to the locals and researching the economic growth in the area will help you determine if it’s a place your business can make money and where you can increase your cash flow.
Use a “Three-Pronged” Approach
Using a 3-pronged approach to evaluating properties, including reading the classified ads, hiring watch birds, and watching for the best properties to help you to be able to find the best options investing in properties.
The Bottom Line
These are just some of the ways that you can ensure that you are getting the best deal in commercial real estate. The better the deal the more you stand to increase your cash flow and get better deals that you deserve and that can help you expand your business.
For more information on how you can find the best deals in commercial real estate please feel free to contact Blackwater Capital.