Five Steps to a Successful Commercial Real Estate Deal
- Have a plan
- Set parameters such as how much you can pay and where your funding is coming from, how much you expect to make, and how long you intend to hold the property. Make sure you have your trusted advisors (lawyer, banker, accountant and broker) lined up to guide you through the process because once you find your ideal property things can move quickly.
- Have an exit strategy
- Part of buying property is knowing when to sell, or when you should forecast selling. Commercial real estate can tie up your liquidity, so think ahead about your anticipated cash flow needs for the next 6 months, year, five years, ten years, etc.
- Know the lingo
- Familiarize yourself with key commercial real estate terms and metrics like Net Operating Income, Cap Rate, and “Cash on Cash.”
- Know the ‘hood
- Educate yourself about the neighborhood. What types of tenants will you attract? Is there a lot of building going on in the area? Talk to the neighbors and keep an eye on the number of vacancies. Sometimes an excess of vacancies can work in your favor, but it could also mean the neighborhood is not a safe investment!
- Due Diligence
- After you enter the contract, a period commences when you need to do your homework. Circle back on your goals and try to be objective about whether the property is going to be everything you need it to be. Work with a title company and your commercial real estate attorney to determine if there are liens, insurance claims, litigation and the like related to the property. Evaluate rent rolls to see if the property can support your mortgage. Finally, consult with your trusted advisors.
Good luck! If you have questions about your commercial real estate deal, give me a call today!
These materials have been prepared by Statman, Harris & Eyrich, LLC for informational purposes only and are not legal advice. This information, such as our previous post about people owing you money, is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel, as the advice appropriate for your particular circumstances may vary.