4 TIPS FOR ANALYZING POTENTIAL REAL ESTATE DEALS
In today’s business climate, accurate and relevant information is crucial for success in commercial real estate investing. Commercial real estate is a sector favorite among investors, with its relatively strong returns and only minimal to moderate risk.
As commercial real estate brokers, we are often asked by our clients to evaluate a potential deal in commercial real estate, these are four steps that we look at to vet a potential deal.
Understand the different types of commercial real estate
Before you even think of purchasing a commercial property, it is important that you first understand all of the different commercial assets that are available to you. Commercial real estate can actually refer to any of the following:
- Retail buildings
- Office buildings
- Warehouse spaces/Industrial buildings
- Multi-family buildings (apartments)
- “Mixed use” buildings
- Commercial land (undeveloped)
- Self-storage facilities
You’ll want to weigh the pros and cons of each type of building or property, as well as your own level of personal interest, to help decide which type of investment or investments will be right for you. Some of the property types require more hands-on management than others, knowing your threshold for the day-to-day involvement is an important decision in which asset class you may choose to invest in.
Know the local market
One of the best tips we can give to help vet potential real estate deals is to know the local market. Having this extensive knowledge is a great way to help determine whether or not to buy a commercial property. Spend time driving around the area and tour other available properties, if possible. Look at vacancy rates and, if possible, rental rates. Talk with tenants in the property you are interested in and find out how they feel about the property. Talk to other experts in the market and find out what they see from a big picture in the community. Find out what projects are being planned, if any. Learn about the local employment situation, are companies expanding or shrinking their footprints in the market. All of these things will give you an insight into these potential investments.
Learn to spot a good deal when you see it
Spotting a good deal comes with experience — knowing the market, knowing the key players in potential deals, and knowing when (and how, if necessary) to walk away from the deal.
When touring a potential property, keep an eye out for any deferred maintenance or outdated features that need upgrading, in order to help you determine if the property is still a great investment.
At the end of the day, finding the right commercial real estate deal is about more than just knowing the market and knowing how to price any potential repairs. At the heart of any real estate transaction is a relationship and communication. Building relationships and rapport with building and property owners can go a long way toward helping them feel comfortable about opening up to talk to you about those really good commercial real estate deals — and want to do business with you.