The Leap to Commercial Real Estate Investments
The stage is set . . . you’re ready to jump into the world of commercial real estate investments. Maybe you’ve been buying or selling single family homes, and your success is prompting you to think bigger, possibly on acquiring apartments — or, maybe you’re a new investor with initial sights set towards apartments.
Just so we’re clear on definitions, apartments — a type of commercial property — are multifamily buildings with five or more units; anything with four or less units is considered residential, including: SFHs, duplexes, triplexes, and quadruplexes.
Finding Apartments For Sale
You start browsing the MLS searching for apartments. You see a few here and there, but you quickly begin to wonder, “Is this really all there is? There’s got to be more for sale than what I can see here.” Well, you’re right. Unlike residential properties where you’ll find most to be on the MLS, many commercial listings rarely see the light of day. The closest thing resembling the MLS for commercial properties is LoopNet but even that doesn’t come close to uncovering all the commercial investment opportunities.
The Shotgun Approach
Let’s pretend you’ve reached the pinnacle of success in your career. You’re a multi-millionaire, and you own a multi-million dollar mansion that is up for sale, which is stunning, and you want top dollar for it.
You list it on the MLS for mass exposure.
You figure that with more exposure, more competition will drive up the price. Brilliant! Numerous calls come in from people expressing interest and who would like a tour. Naturally, you’re excited and you think “With so much interest, I should have no problem selling it.” But months go by and the only accomplishment you achieved was finding that really expensive house cleaner to keep your property in pristine condition as people come through your amazing property. You did enter escrow a few times, but alas, those well-intentioned buyers just couldn’t obtain a loan. After a while, you’re fed up, “These prospective buyers aren’t even buyers at all. They just want free admission to tour my property and most aren’t even qualified buyers!”
Targeted Marketing Prevails
Whether selling a mansion or a commercial investment property, both require targeted marketing to the appropriate audience. An apartment owner only wants to entertain serious prospective buyers. Property tours must be kept to a minimum to avoid inconvenience to current tenants. Escrows should be one and done. Owners want to only deal with suitable prospective buyers who are serious about buying and are capable of closing. So who’s best suited to assist them?
The Commercial Real Estate Investment Broker
The well-trained commercial broker is constantly out in the market talking to property owners and prospective investors. These brokers know when potential sale opportunities are coming since they are in constant communication with property owners. When these owners do decide to list their investment properties, the brokers have already identified suitable prospects from their list of investors.
The Commercial Investment Broker’s job is, first and foremost, to play matchmaker between the apartment owner and a potential buyer. These investors have previously disclosed their investment parameters and have the capital or can quickly raise the funds needed. It is in the interest of the seller and its representing broker to find a buyer who can close the deal quickly. After all, if you were the seller, would you really want to have a property on the market for months on end?
At times, a broker may exhaust their list of investors; in this case, the property may still not make it to the open market because they may contact other brokers and determine if suitable investors are available. Only when all procurement options are exhausted will the property be made available to the public for all to see.
Finding Those Hidden Opportunities
If you’re serious about apartment investing, then one of the most important first steps you can take is to get to know commercial real estate brokers who specialize in the areas you’re interested in. Find the reputable brokers. Establish relationships. Stay in touch so they remember you when opportunities come along.
By doing this, you’ll learn about those off-market opportunities that you won’t find on LoopNet and other listing services. Just a word of caution, it’s critically important you find a broker who you can trust.
Photo: Archibald Ballantine