BiggerPockets

When I was looking for an office building, agents told me we were not going to find 10%+ cap rates along with our other criteria. We did.

Offer cash, but at a price that makes sense for you. You may have to go to another area, but there are motivated sellers in every city.

I agree with Jon. Make your offers based upon making the numbers work for you.

When the agents say the seller wants cash, unless it is REO or they reperesent the seller, they have no idea what the seller will accept. Do not change areas, change agents to one that is willing to write/submit offers.

I've also heard the same noise, and I ignore them. I submit offers that make sense to me. I almost always submit every offer as a multiple offers contained in an offer format: 1) one offer is with 100% seller financing, 2) one offer is all cash, and 3) at least one offer has some cash and some seller financing. I ask the seller to choose the one that makes the most sense to him/her/them. I learned this technique (sometimes referred to as transaction engineering) from one of my mentors.

I actually had a commercial agent in Dallas get pretty upset with me over the format of my offer. He told me that "in my [20+ or something like that] years, I've never seen an offer like this one" insinuating that it was too complex. Whatever. That mentor (who specializes on residential foreclosures) has been using them for years, and he's taught hundreds of people over the years to use this same technique. So, I knew I wasn't the only one using them, and I've been using them for a while nationwide on both residential and commercial properties. He didn't like my answer; I told him basically "it is what it is" and to let me know when he was serious.

By the way, that mentor also taught me to never defend my offer. After all, it's usually a waste of time. Most sellers (and their agents) don't care about the reasoning behind the structure of one's offer; they only care about getting their price. In the end, the seller will accept/counter/reject the offer anyway.

I would like to thank everyone for their replys and and your help and yes Curtis I would appreciate the prequal sheet you offered. My biggest obstigal is the financing I like what Dory suggested but I need a good commercial broker hopefully Bradenton,Sarasota area.Thanks again guys I appreciate the help !!

And why does that always work?

Because unlike residential real estate (current unusual conditions not withstanding) in commercial and multifamily lending the bank's assumption is that the buyer will not make a single payment and that they will end up taking the property back. A property that they lent on according to that formula will always have a cash flow.

raz

I guess you shouldn't have encouraged me!

Here's more on why cap rate is nonsense:

"Net operating income is determined by subtracting vacancy amount and operating expenses from a property's gross income. Operating expenses include the following items: advertising, insurance, maintenance, property taxes, property management, repairs, supplies, utilities, etc. Operating expenses do not include the following items; Improvements such as a new roof, personal property such as a lawn mower, mortgage payments, income and capital gains taxes, loan origination fees, etc."

Mortgage payments not included! Which suggests that your investment decision making has no relationship with current interest rates… What a concept. Just the kind of concept that real estate agents will come up with to earn a buck in commissions irrespective of what happens to the investor.

My apologies to the responsible and ethical real estate agents out there.

raz

Thanks guys I'm glad I encouraged you Raz same to you Dory. I will try and apply your thoughts. Thanks again everyone !!

Cap rate should never be used as a sole basis on determining a deal. Yes you can still use it during an evaluation on the property but it should not be used as just one main point if a deal is good or not because there are more factors in determining the true value of a property.

Raz, that burns me up too. I even had an agent to challenge me on my numbers (because they differed from the seller's incorrectly calculated ones). I replied with a spreadsheet and several investopedia.com references.

Mr_Investor is correct. A cap rate of 10% doesn't mean anything (good) if one borrows at 13%. That's negative leverage; negative leverage is only a good thing for whoever is collecting the payments.