Finding a Good Deal on Commercial Real Estate

It is no secret that the real estate market has been struggling for quite some time now and, unfortunately, that is also true for commercial real estate. The market has been doing much better across the country recently, but it is still important to shop around and know what to do when in the commercial real estate market.

Most real estate professionals will agree that investing in commercial real estate is a much better financial decision than investing in residential property. The trick, though, is to know which commercial property will have the biggest and best payoff.

Here is a great way to help you learn your way around the market:

Finding a Good Deal on Commercial Real EstateKnow the insider information

The first thing that you need to know is that commercial real estate is valued differently than residential real estate. Commercial property has more money flow involved because the value is based on usable square footage. Lastly, know that lenders for commercial real estate look for at least 30 percent down before they will approve a loan.

Create a plan

Know ahead how much you can pay for a property, how much money you expect to gain in a deal, who all of the important people are in the property deal, how many tenants you want to have and how much rent they need to pay, and how much space you will need.

Know a good deal when you see one

The best real estate professionals know a good deal when it comes their way and they have an exit strategy to walk away if they need to. Always be looking for small imperfections like damage that needs repair.

Get to know the commercial real estate metrics

The most common of these are:

  • Net Operating Income (NOI)
  • This is determined by subtracting the operating expense of the first year from the gross operating income. It is important for this number to be positive.
  • Cap Rate
  • This is the property’s capitalization rate, which is used to determine the income that the property will produce.
  • Cash on Cash
  • Real estate investors determine the amount of money that will be required to invest in the purchase of the property to discover cash on cash. This adds in the fact that the buyer does not pay 100 percent right away when buying a new property and must make mortgage payments while earning money from the commercial property.

Find sellers that are motivated

Sellers that are determined to sell are the best ones to buy from, especially if they are willing to sell below market value because they just want to get rid of their commercial property. If a seller isn’t motivated to sell, he or she will be less likely to negotiate with you.

Get to know the neighborhood

Learning more about the neighborhood will help you get a better feel for how much the property that you are looking to buy is worth by comparing other prices.

Search all over

Look for properties online, in classified ads and by shopping around in person.

If you are looking to start a small business and you are trying to buy commercial property, contact a small business attorney for help. Attorneys at the Gierach Law Firm will help you begin your small business in Naperville today.