So, you have decided to invest in commercial real estate. You have gained knowledge about your local market and how these transactions are done. You have a great mentor and have built a team, and you have set your goals. Now, you are ready to invest in your first property, but where do you start? These are a few tips to help you find a great deal.
Find Motivated Sellers
You typically get the best deal from sellers who want out of their properties quickly. Highly motivated sellers are eager to sell their real estate, and you can often get these assets for below market value. If your goal is Property Acquisition, you can’t do better than working with motivated sellers. However, find out why they want out of the property so quickly and do your due diligence.
Calculate Your Key Metrics
Your due diligence begins with your calculations. First, use the seller’s past accounting records to calculate your net operating income, which is the difference between your operating expenses and income. Also, your capitalization rate can determine the property’s actual net present value of the acquisition. Finally, learn about the cash-on-cash rate, which allows you to compare your potential income with other similar properties in the area.
Evaluate the Market
Each time you find a commercial property, you need to evaluate the local market. First, look over the demographics of the area. Can the local population support the proposed purchase? For example, if you are investing in retail space, does the area get enough traffic and do the residents have high enough incomes to support these types of businesses?
Then, review the market. For example, today, many consumers are moving to online purchasing, so warehouse space has become more valuable than retail space. Therefore, you may look for expansive warehouses where you can earn a greater return on your investment.
Protect your financial future by working with a reputable commercial real estate company and mentor. They will help you get the most out of your investments.