How to Find a Deal in Commercial Real Estate
If you’ve decided to get started in commercial real estate investing, then you’re going to need to learn a few things that commercial real estate agents and other investors know. A quick list follows:
- How is commercial property valued?
- What are the basics of the property in terms of rents and vacancies?
- What are the risks?
- What are the key metrics?
- Why is the seller making an exit?
- Comps, or “farming.”
- How to find a great property.
Commercial real estate income is based on its square footage, more so than residential property. Leases for commercial property are longer than residential leases. That means commercial property will generally produce more cash flow. Also, lenders like to see a down payment of 30 percent.
How much can you afford to pay? How much rental income do you expect? How many tenants are now paying rent? How much space is vacant?
Evaluate risk by looking for damage and potential repairs and remodeling needs.
The key metrics are Net Operating Income, cap rate and Cash on Cash. NOI is the first year total operating income minus operating costs. The cap rate, or capitalization earnings, determines the present value of future profits. Cash on cash is determined by the down payment and investors use it to compare similar properties before making an offer.
You’ll also need to determine why the owner wants to sell. Look for a motivated seller who has a pressing reason to leave the property and will be more amenable to a negotiation.
Check vacancy rates at nearby commercial properties and the asking rents.
Finally, when seeking an investment property, use the Internet, check advertisements and contract with a “bird dog” who knows the area and will find the right site for you for a referral fee.
If you are seeking commercial real estate in Culver City or other parts of Los Angeles, you will want to contact the commercial real estate agents at SWI Realty Inc., one of the area’s leading boutique firms. (310) 204-8971 or Email to email@example.com. SWI, or Success With Integrity, serves Culver City and other areas of L.A. from Mar Vista to Hollywood.