BiggerPockets

7 Secrets To Your Success…Investing In Commercial Real Estate

"7 Secrets to Your Success"… Investing in Commercial Real Estate:

 Cash Flow is the name of the game....Knowing your market, the historical operating financials and potential of a property can help in determining the ultimate value to an investor. It is common to see expense loads for commercial properties from 25-50%. If the financials are understated or overvalued, your financing may pull-out in the 11th Hour of your transaction. Always request the Historical Operating Statements, Current Rent Roll & Operating Pro-forma in your searches for viable Commercial Real Estate Investments.

 Existing & Alternate Uses......The potential future uses of a property can make Commercial real estate even more alluring. During the recent housing boom in the early 2000's many condo builders turned to existing apartment buildings for conversion. The sellers were able to sell their buildings at unforseen gains. Typical properties weren't even able to support the requested debt at even a 60% loan to value, but with the increased demand for Residential Condo's this made sense to the buyer's, builder's and bankers involved in the transaction. Always consider the costs associated with potential alternate uses. A variety of uses will always enhance your Commercial real estate investment.

 Location, Location, Location......Not so much of a secret, but always a major factor in valuation of any real estate. Always consider the location of your Commercial real estate investment. Take into consideration, growth and changes that you have seen in similar areas & how they have affected the surrounding real estate. In some cities, where growth is imminent, properties just outside the growth line may be more desireable in 5-10 yrs. It just depends on your strategy. Find an Experienced Commercial Real Estate Agent/Broker to assist you in your search.

 Your Experience..... When searching your options for financing of Commercial Real Estate, you'll find most Lenders like to see experienced Commercial property investors. It's always a good idea to start small and grow than to jump into a large property. Issues with large properties tend to be compounded, & without the right management or owner experience, these can be detrimental to the profitability of the return on your investment. Make sure you are able to demonstrate experience, relations with a property management team, or Partner, that will be handling your Commercial Real Estate investments.

 Know your Lending Options..........In the realm of Commercial financing, not all programs are available for all borrowers. Only borrowers with documentable experience, appropriate net worth, liquidity, credit, & cash flow, are privy to the best terms on Commercial Real Estate Loans. In most cases unless you have a historical banking relationship with your local bank & hold significant deposit accounts within, you'll be denied Commercial property financing. Right now they are "Cherry Picking" from the A+ Loan requests coming in to them. By utilizing a Commercial Mortgage Broker, you will be able to obtain the financing needed in a streamlined manner. As well, these professionals are dedicated to matching up borrowers with Lenders and are there to help facilitate the process for you, every step of the way. They generally have access to a much larger selection of Lending resources, & creative options. Also determine if the Sellers will be able to assist in offering a Seller-Held Second Loan on the Property, which will reduce your Down Payment needed..

 Keep your Finances in Line......This shouldn't be a secret to any investor, but alot of times, borrowers tend to forget that until a Loan is funded, especially now, you "can't bank on it." (no pun intended). They'll go and open up new credit lines or increase balances on their existing lines, or credit cards, and their overall credit will be adversely affected. It is important to keep your finances in order and your credit as clean as it can be. This doesn't mean that you have to have perfect credit, but it will help you in obtaining the best Interest Rate & Terms possible for your Commercial Real Estate mortgage Loan.

 Third Party Reports........Until you have an "offer to lend", "letter of intent", or "conditional loan approval" be sure not order any third party reports without Lender involvement. Most desirable Lenders will need the report to adhere to their guidelines and be requested on their behalf. This is in part due to the differing guidelines by which Lenders issue Loans and in some cases considered a conflict of interest when ordered by any parties involved in the transaction (buyer, seller, realtor, even the Commercial Mortgage Broker). Lenders should not request any up-front Monies, until they are able to produce a "Letter of Intent" or " Conditional Loan Approval". At that time, if you agree to the terms, they may request a "Third Party Deposit" to handle the appraisal, environmental report, title, etc.....

We hope these Tips help you in your First or next Purchase of a Commercial Real Estate Property!!

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