Investing into commercial real estate out of state (Vegas).

11 Replies

Hi,

I came across a commercial real estate opportunity in Las Vegas (a small strip mall, 3 tenants). Since I am based in Los Angeles, what are the pitfals to pay attention to and to cover during due diligence process as related to out of state investment? Do I need to retain an agent to represent me who is from Vegas or to utilize one I already have in Los Angeles? Thank you,

@Igor Nastaskin , I used to work at a commercial brokerage here in Los Angeles, from what I remember, you can use your agent here to interact with a local agent at the property location (and please correct me if I am mistaken BP readers) or just use a local agent at the property location, the agent which represent the property, if the deal closes, he'd probably have bigger cut , seller's and buyer's commission.

Regarding the property, we use to check the Anchor tenant, and the lease terms in general, property improvements opportunity, and just to make sure all the numbers make sense to you.

If you are interested, I can connect you with the broker that I used to work for, just to go over the numbers, he is very knowledgable guy with over 30 years in the business.

Good luck !

Originally posted by @Igor Nastaskin :
Hi,

I came across a commercial real estate opportunity in Las Vegas (a small strip mall, 3 tenants). Since I am based in Los Angeles, what are the pitfals to pay attention to and to cover during due diligence process as related to out of state investment? Do I need to retain an agent to represent me who is from Vegas or to utilize one I already have in Los Angeles? Thank you,

Try to perform as much due diligence as possible from here. Best thing for most buyers is always to take a quick trip out to view the subject property (make a weekend out of it). Depending on what part of Vegas it's located in, the optimal thing would be to take a look at the rent roll, check leases and detailed expense report. I am only a broker here in California, but the importance of finding a competent broker out of state is imperative. It will make the deal flow smoothly and your life easier.

This post has been removed.

Hi Igor,

You picked a great market. There's plenty of activity in Las Vegas. So this is a retail center? There are many different details one must pay attention to and cover during the due diligence process to avoid potential pitfalls. 

I would definitely go with a local broker/agent, where the property is located and preferably one who specializes in those types of properties. CA and NV likely have different laws in regards to real estate transactions, which could pose a problem for your CA agent. You could ask him to refer you that NV agent so that he gets a referral fee. 

Based on my personal experiences, here are some questions that I would ask and verify during the due diligence process, which may apply to you: 

Do these 3 tenants occupy 100% of the building or is there vacancies (opportunity)? Does the Cap Rate work for your investment buying criteria (return on investment, given that you paid all cash for the property)? Are you financing this property through a lender, and if so, will you cover the Debt Service Ratio for the lender (for every dollar in mortgage payment, lenders want to see about $1.35 in Net Operating Income)? How long are the leases and how long do they have to be for the lender to consider them strong? How long have tenants been there and have they established their business there for the long term? If any leases are due to expire within the next 24 months, are tenants planning to resign, and if so, will they sign a Letter of Intent for the lender? Who pays what (taxes, insurance, utilities, maintenance)? Is there opportunity to off-set expenses to increase NOI and value? Your agent should help you with this process and other disclosures pertinent to your transaction.

Hope I was helpful. I'm sure more experienced commercial investors will give you some great pointers too. Good luck on your deal!  

Regards,

Tim

Originally posted by @Francis A. :
It might be a good idea to listen to this Biggerpockets podcast. Las Vegas based property manager. Rentals but I'm sure some of the info is applicable.
You might even want to contact him after you've given it a listen.

http://www.biggerpockets.com/renewsblog/2014/03/20/bp-podcast-062-managing-tenants/

The person interviewed in that Podcast, @Phillip Dwyer , also holds a monthly BiggerPockets real estate meetup in Henderson, you should come if you can come into town for it.

@Joe O !

Good info, thanks! What zipcodes would you suggest to start looking in the Vegas area. I've heard the market is heating up. What's the word from the ground over there?

Thanks!!

Congrats! If you have an agent you like and trust, they can represent you. Just make sure you have a written buyer broker agreement in place that spells out they are working for you, even though they are collecting their fee from the Seller. Would highly recommend you have someone who's knowledgable on your side if the table as you lose a lot of the "Consumer Protections" that residential folks get in a real estate transaction. As for due diligence, the main thing is to make sure you don't have any potential environmental problems. In addition to your agent you'll want to have a good real estate transaction attorney and someone to help out when you do your site inspections, preferably an engineer type with part experience in checking out commercial
Properties.

Congrats! If you have an agent you like and trust, they can represent you. Just make sure you have a written buyer broker agreement in place that spells out they are working for you, even though they are collecting their fee from the Seller. Would highly recommend you have someone who's knowledgable on your side if the table as you lose a lot of the "Consumer Protections" that residential folks get in a real estate transaction. As for due diligence, the main thing is to make sure you don't have any potential environmental problems. In addition to your agent you'll want to have a good real estate transaction attorney and someone to help out when you do your site inspections, preferably an engineer type with part experience in checking out commercial
Properties. P.s. Your California agent can get reciprocity in Nevada, so him/her getting paid from the Seller for representing you shouldn't be a big deal.

Hi Igor,

I can tell you the commercial market is heating up. I have many clients ready to deploy capital.

My personal view focusing on commercial full time as a broker is that now is the time to deploy capital. If you wait I see the interest rates rising because of the feds eventually pulling back with QE and buying less bonds.

So say right now this very second you can land a high quality retail strip at a 8.5 to 9 cap. Debt you can get close to 4.6% fixed for 10 years with 30 year amort., non-recourse. Many local banks are not selling these loans. You have to go higher in loan about 2 million and up after down payment so 2.5 mill and higher.

I think rates will go into the 5's and caps will compress by 7's early next year due to demand. I have been getting many phone calls lately from purchasers saying residential is drying up. They are selling off assets and doing a 1031 into commercial or they are doing refis to pull liquid cash out. Everyone is searching for the most safe yield versus cash on cash and locking in the debt.

There are many other to look at with these strip centers. I know we have communicated before. If your current broker/agent cannot help you or doesn't have that experience you need to get someone else. It's great that they are a nice person but that doesn't mean they have the skills to help you the most. ( I wanted to add in to this after reading it back to myself that I am not saying a plug for me in anyway whatsoever . I am saying if you have been looking that long with the same broker/agent then you are not finding the right opportunities to purchase or there is a missing piece to the equation).

I just know from previous posts on here you have been looking at properties for awhile. I know commercial and the markets in the future are tightening. Waiting longer is just getting reduced supply, tighter return margins, and higher debt rates. If the retail center is value add know that lenders will want recourse against you.

With just a three unit retail center the tenants have to be very strong on the leases. If the breakeven occupancy is say 66% on the loan you are there if one tenant goes out or worse if they are the larger tenant. If you have a 10 unit strip center you have to be about 4 units down for the same affect.

@Igor Nastaskin   I have a good commercial agent in my office that I can refer you to should you need a local commercial agent. Feel free to contact me should you need the info.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here