Your options for this type of real estate investment include apartment buildings, storage facilities, mobile home parks, office and retail stores, shopping malls, or warehouses. The most important consideration when buying commercial real estate is to make sure you are getting positive cash flow each month. Actually, this is getting easier with the recent changes in the market, again, with the big “IF” that you are buying well.
Commercial Property Can Be Purchased at Bargain Prices Commercial property is now available at lower prices and better rates of return than investors have seen in many years. There are 3 main reasons for this:
1) Bubble investors overpaid for commercial property – Like single-family homes, overzealous investors have paid too much in recent years for properties in the hope that prices will continue to rise forever. Now that the market has tightened, these investors are looking for a way out. Unfortunately for them, the only way out in many cases will be for the asset to go into foreclosure unless the lender is willing to negotiate with the property owner or potential buyer.
two) Commercial property loans are more difficult to obtain – Now that conditions have changed, lenders are, of course, backing down. Most lenders today are only interested in financing commercial properties that are “performing”. This means that the property is fully rented, except for a small vacancy fee, and that the income from the property covers all expenses, leaving positive cash flow for the seller as a buffer in case the market weakens. If a commercial property has been poorly managed, or if the vacancy rate has been too high, then most lenders want the property to be successfully renovated and operated for at least one year, and in some cases two years. completed before the lender repossesses the property. Consider lending funds secured by real estate.
3) Creative financing can be used, but most brokers don’t get it. – Sellers who have to sell in this market may need to be open to creative financing, but most commercial brokers only have experience structuring conventional transactions. This means that if the property has been poorly managed or has a high vacancy rate, no matter how hard the broker tries to sell the property, if it relies solely on conventional financing, then the likelihood of reaching a successful closing is bleak.
These three factors are creating opportunities for investors who understand how to approach commercial brokers about creative financing for commercial assets, and who realize that in this market they can put together unconventional transactions using methods such as a master lease option, owner transportation, and Purchase using Existing Financing. Once you understand these ideas, you’ll be able to build your commercial property portfolio right now during the real estate downturn instead of waiting for lenders to start lending again.
This gives you the opportunity to own commercial property at a time when prices are favorable, and because conventional loans are not readily available, sellers and brokers are much more open to buying with creative financing methods.