A Guide To Finding a Smokin’ Hot Commercial Real Estate Deal

With commercial real estate prices plummeting in 2008 by an astonishing 10.6-percent, real estate investors are on the scene, recognizing that lower-than-average property values make an ideal investment opportunity.

In fact, a study conducted by Marcus & Millichap Real Estate Investment Services, showed that out of 1,129 commercial real estate investors, nearly 51-percent anticipated increasing their commercial real estate holdings.

The benefits of commercial real estate include additional cash flow and ultimately bigger payoffs. But how is an investor to know what commercial real estate deals are a score and which ones could potentially land them in financial hot water? This guide offers step-by-step advice for locating smokin’ hot commercial real estate deals that are simply too good for investors to pass up.

  • Learn – As with anything, commercial real estate investors need to learn the details of the commercial industry. Commercial real estate is vastly different than residential, as income is based on usable square footage. Commercial properties also see substantially bigger cash flows, which allows multi-family properties to earn more income than standard single-family residences. Commercial leases are also longer than residential leases and most lenders require 30-percent down payments.
  • Action – Before jumping into a real estate transaction with both feet, investors need to determine how much they can afford. Additionally, basic math is a necessity as in order to turn a profit. Investors need to have expectations about cash flow, how much rent they can charge and even how much space needs to be filled in order for the books to go from red to black.
  • Good Deals – Having an exit strategy is a key component to any successful real estate investor. Knowing when a property is a money pit versus a good investment is essential. Assessing risk and being able to spot expensive potential repairs is an absolute must.
  • Key Terms – Commercial real estate operates on an entirely different playing field than residential properties. This includes having select key terms.
    • Net Operating Income (NOI) – This allows investors to calculate the value of the property’s first year of gross operating income by subtracting all operating expenses within that same year. This number should always be positive, never negative.
    • Cap Rate – Known as a capitalization rate, this term calculates the value of income producing commercial properties.
    • Cash on Cash – This allows investors to compare their first-year performance with other similar properties. This term takes into consideration the NOI and how some of the funds are used to make necessary mortgage payments.

Better Than Loans strives to keep commercial real estate investors informed about the latest real estate market offerings. They understand that without new investors entering the volatile real estate market, it would take a substantially longer period of time for real estate property values to recover. As a hard money lender they offer fast loan funding for bridge loans, commercial building loans and apartment loans.

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