The profitability of any real estate investment depends a lot on your ability to locate the best commercial real estate deals available in the market. By investing in real estate deals that have the most potential, you can maximize your profits and lower your burden by investing in only a few deals per year. The best commercial real estate deals will give returns that are equivalent to three to four times the amount of your investments. If you invest in average deals, the returns will be relatively less and you will have to do more deals for getting the same returns. The amount of work and process involved are more or less the same for any real estate deal, so it is better to do less work and get a greater return.
You need to make sure that the resources used for locating the best real estate deals are accurate and reliable. For finding the best deals, you can approach reputed commercial brokers, as they are the ones who actually have the properties listed. After noting down your requirements, you can go to these brokers for getting information about the availability of properties that you intend to buy. You need to cast your net wide by calling local brokers, as well as brokers in other states that will be more than happy to call other brokers and find listings that best fit your criteria. When you approach a broker, make sure that you ask for pocket listings, or listings that are about to go on the market, but are not yet listed officially. This will help in finding the best deals and getting ahead of the competition.
The Internet can also be used for finding the best deals, as there are numerous sites dealing in the sale of a variety of properties ranging from raw land to large retail and apartment complexes. On these sites, you can get the required information about the property, as well as the broker. You can keep filtering out the information until you get to deals that suit your predetermined criteria.
Another place where you can find the best deals is probably an auction house that auctions different types of properties. Very often, you may get excellent deals that would otherwise have cost you a lot more if purchased from a commercial broker. It is necessary that you register with some of the most reputed auction houses in order to obtain e-mail notifications about properties that are put up for sale from time to time. This will give you enough time to contemplate on your investment decision before the actual bidding day. Some of these establishments also provide the option of purchasing a property at a specific price before it goes for auction. This makes it even more necessary to stay in contact with several auction houses, as you never know what opportunities might come along.
Apart from these, you can also use local resources such as newspapers, listings, and magazines for finding the best commercial real estate deals. One thing that you should always keep in mind is that the more contacts you have, the more are the chances of finding the better real estate deals. This means that rather than depending on a single source, you need to refer to as many resources as you possibly can.
This question came from Kiho Kim in Anaheim, California and, surprisingly, doesn’t have a straightforward answer. When someone asks me that question, I know that they’re probably focused on one thing: The loan with the lowest interest rate. Unfortunately, in commercial real estate, this approach can end up costing you a lot of money.
When you get involved in commercial real estate, you become involved in a more sophisticated method of investing your money. Commercial real estate and commercial real estate loans have a lot of “moving parts" and the approach that commercial lenders take is far different from those in residential lending. When considering financing on a piece of investment property, you have to approach the process with "commercial mortgage planning" in mind.
What is commercial mortgage planning? It’s a process in which all aspects of the loan are considered in the context of the commercial real estate investor’s current portfolio, future portfolio goals, style of investment, and cash flow needs. Let’s see how this works in a practical example and then use that example to further answer the original question in the first paragraph.
Which is the best loan? A 3/1 ARM with a declining 3 year pre-payment penalty of 3%-2%-1%, a rate of 6.75%, a full amortization of 30 years, and a margin of 2.50% over 6 Month LIBOR, or a 10 year fixed rate loan due in 10 years, with a 30 year amortization, at a rate of 5.9%, with a Yield Maintenance prepayment penalty until 9.75 years have passed?
On the face of it, the 30 due in 10 is almost a full percentage point less in rate! No brainer, right? Let’s fill in a few more details and see if this analysis stands.
The investor contemplating the loan is an active real estate investor who purchases properties that have vacancies or month to month tenants that are slightly run down and in need of upgrades. He holds properties until re-tenanted, renovated, and then sells them to generate cash for new purchases in a 1031 Exchange to preserve his buying power.
In light of this information, the 30 due in 10 would be a terrible loan. It’s likely that such an investor would be ready to sell the property in the 3rd year to take advantage of the 1031 Exchange holding period and provide a stabilized leasing history to a new buyer. He’d only face a 1% pre-payment penalty using the 3/1 ARM, something he could easily factor into his “costs." The fixed rate loan with its Yield Maintenance pre-payment penalty could literally cost him hundreds of thousands of dollars, depending upon market conditions, when he goes to sell the property. In fact, it would likely contain a “lock out" clause completely preventing a payoff for up to 4 years. That loan would have to be assumed by the new buyer and the difference made up in cash, limiting the potential pool of buyers for that property.
So how does this example answer our question: “What is the best commercial mortgage?" This way: “The best commercial mortgage is the one that best fits the commercial investor’s short and long term goals, risk tolerance, investment style and the investment at hand." And as a side note, be sure to work with someone experienced not only in commercial loan brokerage, but who will take the time to consider all of the factors that could affect the current and future transactions.
Both Kris Koonar & Craig Higdon are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Kris Koonar has sinced written about articles on various topics from Site Promotion, Certified Public Accountants and Culture and Society. We will buy your house As Is Now in any condition including Ugly Homes. If you need to Orlando, Jacksonville, Atlanta, Charlotte, Cincinnati, For Lauderda. Kris Koonar's top article generates over 550000 views. to your Favourites.
Craig Higdon has sinced written about articles on various topics from Finances, Debts Loans and Jewelry. WANT TO USE THIS ARTICLE IN YOUR E-ZINE OR WEB SITE? You can, as long as you include this complete statement with it: ‘ “The Investment Property Insider" is published by Craig S. Higdon, a veteran commercial mortgage broker. He publishes the weekly e-zin. Craig Higdon's top article generates over 8100 views. to your Favourites.