Is CRE basically priced for cash-only purchases (no financing)?

Question

When I look at listings across upstate NY, I don't see anything that cash flows with 60-75% debt financing. If I wanted to purchase a $1-2M strip mall property for example, and finance 60-75% there would be substantially negative cash flow. Every broker I speak with gives the 'this is a value add where you can dramatically increase rents & therefore cash flow' pitch but that loses credibility when every property on the market is essentially a negative cash flow value-add listing. If <6% cap rate why wouldn't I just put my money in the S&P index?

I'm an agent/investor focused on 1-4fam residential but would like to better understand CRE as I'd like to evaluate potential acquisitions around the $1-2M range. Thanks!

Ronald Rohde · Answer

There are plenty of positive cash flow deals. I think you need to look at more deals. I just bought a listed 9 cap single tenant industrial deal in DFW. I have some WALT risk, but its IOS, concrete and a nice metal building--I have no issues with releasing if it comes to that.

we have bank debt at 6.75%...nice spread

Joel Owens · Answer

1 to 2 million properties waste of time in commercial like 100k to 200k house.

People have nice residential rental and think commercial at 1.5 million will find quality.

More like 3 million and up. If you can't afford well located high quality commercial properties then stick to residential until you build more cash to work with. The assets 1 to 2 million often in bad parts of town, rural areas, etc. They have a problem management can't fix to increase the value.

Now if you own a small business ( you say you are an agent ) then what some do is buy a retail center where they occupy 51% of the space. Get an SBA loan with bank loan and often get in with 10% down payment. Fill up the other spaces to commercial tenants and hopefully over time they help pay off your mortgage for a free and clear asset.

Henry Clark · Answer

OP for you CRE is multi family?

If all the deals you see the numbers are the same then you need to change the numbers.  And the deal.  1.  Run your numbers that work for you and make the offer.  Forget list.

2.  If that doesn’t work. Pick properties that have been listed for a while.  They will understand the market better than a new seller.

3.  Let’s say they want $1.2mm but you want $900k.  Come up with different financing approaches.  Offer $700k with $300k sellers loan with no interest.  Come up with an angle that works for you.  Also your banker will buy into.  4.  Are you wanting to scale????   Look on GIS property tax map.  See what other properties they own.  See if you can make a larger deal.

5.   What is your world economic view.  If you think we will have inflation while the U.S. dollar gets devalued 9% every year.   Then your asset value will go up.   Your debt value will drop like a rock.  It’s a great deal.

Matthew Banks · Answer

thanks for the suggestions and examples @Henry Clark!!

Henry Clark · Answer

OP looking at this area.  Treat as a buyers market.  Not a lot of population or growth in that area, so you have to buy right.  The value add actions are easy.

There are enough mobile home parks for sale, even in the middle of the state.  You might decide this is your REI strategy and learn how to scale.

Henry Clark · Answer

OP

I actually don't like this one.  But there is a deal to be made.  Mobile home parks, you don't want to own the units themselves, just the lots.  Value add.  Sell the units to the renters.

Make an offer that works for you.  3 day offer subject to DD, finance, etc.

Move on to the next deal.

Henry Clark · Answer

OP

56 Park St, Malone, NY

WOW.

Again make an offer that works for you.  3 day offer subject to DD, finance, etc.

Move on to the next deal.

Henry Clark · Answer

OP

632 and 626 State Highway 11C hwy, Winthrop, NY.

Again, there is a deal to be made.  Make an offer that works for you.  3 day offer subject to DD, finance, etc.

Move on to the next deal.

Henry Clark · Answer

OP.  Made it to a computer, easier to look in your area upstate NY.

53 Banker Rd, Morrisonville, NY

This is a great deal.  Forget their number.  Analyze the deal, due diligence, make an offer that works for you.

We are in Self Storage.  Our business is know for Sticky Customers.  So a slight rent increase, very few move out.  Same thing for this location.  Keep in mind it costs about $10,000 to move a trailer.  Your customers are even more sticky, thus you can increase rent.

Make a 3 day offer subject to DD, financing, etc.  If they don't accept move on to the next deal.

Is CRE basically priced for cash-only purchases (no financing)?

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