Hi,
Does anyone here have commercial property ? How many units do you have ? and also, how did you go about acquiring this property ?
Thanks
Steve,
Yes, many of us have commercial property. There isn’t any significant difference between acquiring a commercial property and a residential property (except everything is more expensive with commercial).
Good Luck,
Mike
Hi,
What I meant is the process to acquring commercial property ? Do you use the same methods with commercial as residential ?
Thanks
One big difference is the down pmt needed to acquire the property. For example, five of my places I bought with zero down, non-owner occuppied 1-4 units. No seller financing or any type creative lieing on the mortgage, and at really great rates. This would never happen with commercial property.
With Commercial property you will need at least 10-20% down. I’ve come accross one or two places that will do $0 down on commercial but they want 14-17% and you would not be able to roll the closing costs into the loan with these zero down loans.
If you need a zero down loan then try and get the seller to do 100% finance for 2 years then you will met the seasoning requirements and can refinance for an 80% of mkt value which will hopefully cover your seller loan. Make sure you get a poorly managed property that has potential for raising value, or get a great deal that is close to 80% of the mkt value.
Hope that helps SteveGent.
Hi Iron,
Iron, do people normally purchase commercial property for 70 ARV ? like residential property ?
Thanks
I have gone through part of the process three different times, twice through lenders and onece through 100% seller financing, but I ended up backing out. The process is the same except the appraisal is much higher, the loan takes twice as long, and you need more money down. But I didn’t see any differences in the actually acquiring process.
I’m not sure about your last post. I’ve only tried to buy with 10% down or with seller financing. Looking back I really liked the 100% seller financing and then refinancing and paying off the seller. You have to buy a good deal or a poorly managed property to make this work. Also you will have to really sell the idea of 100% financing with a seller. Focus on the fact that they will be paid in full within 2 years. they like that part. They will like that they don’t have to carry a note for very long.
Steve,
I have bought several commercial properties using small local banks. I have bought all of these with 100% bank financing and no money down with competitive interest rates. I’m currently buying an apartment building at 8.25 % with a 20 year term. To do this, you must buy the properties at a big discount, below 70% of the appraised value with the bank’s appraiser. The bank uses the 30% equity for collateral and I get the properties with minimal or no out of pocket expenses.
The process of acquiring commercial property is the same as residential except everything is more expensive.
Mike
Focus on the fact that they will be paid in full within 2 years. they like that part. They will like that they don't have to carry a note for very long.
How will the person be paid off in 2 years ? Let me guess, when you refi, they get paid off ? Is that correct ?
To do this, you must buy the properties at a big discount, below 70% of the appraised value with the bank's appraiser. The bank uses the 30% equity for collateral and I get the properties with minimal or no out of pocket expenses.
How do you do this ? MLS ? LoopNet.com ? Do you buy run down shacks and rehab them ?
Thanks
With my quote you are correct you need to refinance in 2 years to pay the seller off. So if you bought the place for $80,000 then you would want to bring the value up to $100,000 so you can get a 80% loan and pay the seller off. You want to allow yourself enough time to pass to meet the seasoning requirements, and improve the property.
The way I discussed is not easy to find. Also getting loans like propertymanager discussed is difficult because its hard to find properties with that much equity. But between the two ways we both mentioned you should be able to find some properties.
With my quote you are correct you need to refinance in 2 years to pay the seller off. So if you bought the place for $80,000 then you would want to bring the value up to $100,000 so you can get a 80% loan and pay the seller off. You want to allow yourself enough time to pass to meet the seasoning requirements, and improve the property.
Hi Iron,
I can see where this will be diffucult thing to do. For a property in my area to appreciate 12.5% each year if often not common but I see what your saying.
10,000.00 apprec. each year
10,000.00 / 80,000.00 = 12.5% each year
Thats 1.04% each month !
Thats 0.26 each week !
Thanks
Relying completely on appreciation is probably is not what you want to do. You need to find one of two things. Either a place that is just a great deal ex. you buy it for $80,000 but it’s worth $100,000. Or you need to buy a place that has lower then market rent, you go in and over a 2 year period raise rents to where they should be and this increase the value to the full $100,000 needed.
A commercial property can be be worth $80,000 one day and then the next day be worth $100,000 if you can raise the rents. Its not just the appreciation that your looking for, its improvements to the property management. That’s why in order to make this happen you need to buy a place that is poorly managed. Go in and raise rents which will immediately increase the appraised value. This is different then residential properties. If you increase rents on a duplex that doesn’t necessarily mean the value goes up, with residential property the appraisal has to use local comps to determine the appraised value.
Hi Iron,
I understand what your saying. Can you list a few examples in what you acquired and how you raised the value ? How did you acquire the properties ?
Thanks
I only own 1-4 unit properties. The ways you would increase the appraisal value on a commercial property would be to buy a property that has 25 units and for some reason only 15 units are rented. Or buy a 25 unit property that the rent is $500 a month but the market will allow you to charge $700. You would be amazed at how many properties are managed badly. Rent way under market value, because they are afraid of vacancies, never be afraid of vacancies. I see 4 plexes and duplex all day long that are great but completely empty. There are an abundance of renters in my area, but there are tons of vacant income properties. Why is beyond me, but its worse then you would think.
Or you could just buy a place that is worth more then you paid. I paid $235,000 for my foreclosure house, when the appraisor came through it was appraised at $285,000. You can find a good deal and then just wait a little while until you have some seasoning with the property and then refy at 80%. How long you wait to refy is determined by how good a deal you get. If you buy a property at 70% of market value then you could probably find plenty of lenders to refy right away. Otherwise you will have some seasoning requirements.
i do not own any commercial real estate. but i can tell you this - go out and ACTUALLY READ about commercial real estate. then ask better questions.
iron can’t (nor anyone else) explain to you the ins and outs of investing in commercial real estate. you want basics:
raise rents by:
purchasing a commercial prop that is poorly managed
if it has been poorly managed it will be in need of updates.
you buy it well below market and then correct the mismanagment.
landscaping, painting, leaky faucets, meters, marketing, networking to bring in affiliate income, etc. are all ways to increase value.
cap rate will let you know how much you can increase value, and thus increase rents…but also evaluating MARKET RENTS IS KEY.
you must, must must, know FOR CERTAIN who’s charging what and what their vacancy rates are.
so now, you need to find out about:
cap rate
market analysis
cost analysis
property analysis
etc.
the ONLY way you’re going to learn this stuff is if you become more comfortable talking with people, reviewing financial statements (income/expense data) etc.
for about .85 in late fees at your local library, a few good books should be able to get you the basics - from there it’s up to you to continue improving your investor mindset by DOING. DOING doesn’t mean going out and buying…it means managing your time efficiently to prepare yourself to start buying like a madman!
wax on, wax off. 
Tmcg,
Know of any good commercial real estate books ?
Complete Guid to Buying and Selling Apartment Buildings - Steve Berges
Complete Idiots Guide to Commercial Investing
Hi,
Whats the cap rates you look for when investing in commercial property ?
Never go by cap rate!!! It is absolutely meaningless for your business. Do a proper cash flow analysis using real world numbers. Businesses fail because they don’t have the proper cash flow, not because the cap rate wasn’t right.
Mike
Mike,
When your looking at a commercial property, what do you look for ? how do you analyze the property ?