Why do I need a commercial real estate agent?

Why do I need a commercial real estate agent?

Member since 2018 · 71 posts · 50 votes

I am a real estate broker in CA and have been investing in residential RE for over two decades. Bought and sold a couple of dozen properties over the years using my own real estate license. Now I am planning to buy a commercial real estate (of approx value 2 million). It is a single tenant, absolute net, lease contract of a standalone building. The tenant is a retail establishment owned by a very large profitable listed company.  The tenant is at the property for 20 years, and three months ago signed an extension for 5 more years. In all likelihood, tenant may extend it beyond 5 years too. 

My question is, do I need a real estate agent? The commission seems to be over 60K so it is not exactly chump change. Since I found the property myself and have reviewed all the financial statements of the tenant store as well as the parent company to be satisfactory, what exactly would be the benefit that I get from the broker instead of my self representation? I did all the paperwork for my residential purchases in the past and kept the commission for myself. What are the risks that I will be exposed to, if I were to do the same for the commercial property too? If there are any risks, is there a way I can mitigate the risks (say by hiring a real estate attorney or an agent who will work for an hourly / flat fee? I want to be frugal and save money on commissions, but I also don't want to be stupid and expose myself to a risk that a broker/attorney can help save me from when I am risking 2M). 

Any commercial real estate investor who tried going solo and lived to tell the story? Any inputs are greatly appreciated.

Thank you,

Prithvi.

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Investor · Elgin, IL · Member since 2019 · 20 posts · 9 votes
5y

We have purchased from listing agents with no buyer agent. We have a go-to real estate, high experienced lawyer. Most deals we work on industrials we only rely on our lawyer to draft paperwork. We use a standard LOI we have developed over time. If you don't have one, the lawyer can draft one for you.

I agree with you. I only got a broker's license to receive split commissions; however, if we find a property on our own, we have not felt a need for an agent. 

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  • Rental Property Investor · Ontario, Canada · Member since 2016 · 68 posts · 29 votes
    5y

    @Sam B. What did / will you do after the 2 years are over?

  • Member since 2019 · 106 posts · 32 votes
    5y

    @Aurelien Bonin

    So tenant vacated 3 weeks ago. I got a buyout offer from them and negotiated for the best offer, got 95% of remaining term as a buyout lump sum cash. I hired the best leasing broker in the area and have 3 LOIs of which I agreed to one of them. Let’s see what happens but it’s working out so far, fingers crossed...

  • Rental Property Investor · Ontario, Canada · Member since 2016 · 68 posts · 29 votes
    5y

    @Sam B. Sounds great, thanks for sharing Sam and best of luck!

  • Member since 2018 · 71 posts · 50 votes
    5y
    @Joel Owens, 
    this comment was meant for you. 

    Originally posted by @Prithvi Sri:

    Thanks for the hard hitting response. Agreed on almost all the counts. Especially the point about figuring out what the rent for it if I were to go to market today to rent it out. 

    Here's how I did my math though. By going for 9% CAP, I am making probably an extra 12% total over the next four years. At 6% CAP, that is almost two extra years of rent - something I can afford to keep the unit vacant while scouting for a replacement tenant. I checked the comparable sales in the neighborhood and other active listings around. They all are slightly above the subject property on a per sft basis which gives me some confidence that I can rent it out should the tenant leave after 4 years. I could be wrong but that's what I am going to find out.

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