This question bothers me and typically comes from a new investor or what we commonly refer to as “bottom feeders” and while neither of them are bad places to be, they are normally not the greatest mindset for actively chasing commercial deals. Commercial Real Estate is a balancing act of timing, market rates and leverage. Is it a good time to prospect? Can I get higher lease rates at that property? Will Cash Flow be much better with more favorable leverage? These are several of the questions that can determine a Great Deal on Commercial Real Estate. So instead I am going to explain how you can make a Great Deal in CRE in several questions below and hopefully its a good starting point to think about how you can use your skillset to invest in CRE.
What are you good at? Thats right what are you personally good at and what challenges do you over come the most that can be applied to commercial real estate. I am good at marketing and creating a buzz around things, so in my head I think a building that is poorly shared or has little exposure would be a great investment for someone like me. For instance there are properties that sit in the middle of a busy hot area but have had the same tenant paying the same rent for 35 years. We all know the little local insurance company that just chugs along. This is a great space to buy, update and increase its exposure to reach a higher paying tenant or even a higher and better use.
Do you have Cheap money or Expensive money? Looking back I wished I had known the importance of raising capital for commercial projects and saving lots of time trying to figure out how to find a buyer for a property. If you want a good deal on CRE you need to find Cheap or Reasonable sources of money beyond the banks and lenders. I am talking about meeting people that take their cash and invest in other peoples CRE deals, called equity partners or hard money lenders sometimes but either way they provide the capital to get your project closed. Knowing the difference between cheap and expensive money is a common mistake people make and those that understand “borrowing to borrow” or OPM(Other Peoples Money) reduce the risk but open up the greatest opportunity for finding great CRE deals.
The flip is a flop! Everyone can picture buying a property for nothing, cleaning it up for as little as possible and turning around to sell to an end user for a crazy profit. Unfortunately I think its a waste of time to think short term and its a really expensive way to invest money. Unless you are doing major retail and multifamily or huge office developments to sell to REIT’s you need to focus on Cash Flow and owning for a long period of time. Its taxed better then capital gains and when you really look at the numbers you profit from a flip and the risk involved, its not very attractive in CRE. More importantly you should look at using your skills, leverage and the current market to determine what long term use would be ideal and how much you can spend to get it to that while maintaining your return projections. Buying a property to sell is rarely a quick windfall but more likely a high risk small gain with a lot of work to get you there.
I don’t think my 3 ideas are the start or end all of starting to invest in CRE but I do know they are great candidates for consideration. Buying CRE is a business and the business is not the buy or the sell, the business is the financial model you build around the investment and what you do with it for the years to come. It is also very easy to get excited by the numbers but buried by the high risk in CRE so starting small and reducing your own cash investment can be a way to sleep at night. In my opinion there is no better way to create wealth and long term cash flow then through commercial real estate but if you do not think of it as a very structured business model and more then a get rich quick scheme, you should probably not risk your friends money on it. There are some great examples of all ends of the spectrum out there and there are a lot of people out there that have built a darn good life around it. So Where Do You Find the Great Deals on Commercial Real Estate? Its you! Your skills, financial reach and knkowledge of a market are the Great Deal. Now go use that.
Curt has been in the Indianapolis Real Estate business for over 10 years and spent his first years learning all aspects of commercial management and brokerage. He has had great success in managing existing commercial projects and new retail and office developments. Curt specializes in building owner representation and purchases in the Westfield Indiana market as well throughout the Indianapolis Metro area. Curt is passionate about growing the local Westfield community and in his free time volunteers with Westfield Youth Assistance and raising 2 children with his wife Jennifer.