How To Be The Most Informed Buyer

How To Be The Most Informed Buyer

If you’re looking to buy commercial real estate, keep in mind that the process is often complex and requires more than a quick glance at initial figures. You’ll want to gather as much information as you can about the market, the seller, and other aspects related to the sale. Understanding the process and being aware of the timing can also be helpful. If you have the right strategy, you can secure a favorable price that aligns with your goals.

Here's how to navigate the steps involved in researching and purchasing commercial real estate properties.

Look at the Financing

While you can ask a broker about the existing debt, keep in mind that debt amounts are on public record. If the loan amount is greater or close to what the property is selling for, the borrower may not be able to transact. In such a case, you might consider reaching out directly to the lender.

Evaluate the Profile of the Seller

In many cases, you’ll be speaking to a broker overseeing the transaction. If you have a good relationship with a broker, you may be able to gather valuable insight into the property. A good starting point is often to check for the seller’s motivation. You can ask for the reasons behind the sale. Perhaps the owner is moving away and can no longer oversee the property. There may be renovations or repairs needed, and the current management might prefer to have someone else handle it. In some cases, a seller might be in a financial position where they need to sell. For instance, maybe they have a loan coming due and they will no longer be able to maintain the property. I talk more about the seller’s motivation in Step 3 of my book, “The Insider’s Edge to Real Estate Investing.

Check on the Timing of the Sale

Has the property been on the market for months? Or longer? If an owner is not in a hurry to sell, it could mean they are hoping to achieve a certain price for their building. You could also talk to the broker involved to learn if the owner would be willing to do a preemptive deal. A preemptive offer is a bid that is made on a property before the official day that a seller agrees to show the property and list it for sale. Find out if there is a bid deadline the seller is hoping to meet.

Sometimes owners are looking to carry out a 1031 exchange in which they reinvest the proceeds into a replacement property. They’ll usually need to identify the next properties within 45 days of the sale. You may be able to allow for a longer closing period, because this gives the seller more time to find properties.

Gauge the Interest of Others

If a property is hotly contested, a sales process will often move quickly. There could be a lot of interest from other buyers and a call for non-contingent deposits. These are offers from a buyer that a seller can accept, and there are no specific conditions that need to be met before the deal is completed.

However, in other instances, there may be less interest in a building. You could make an offer that is 15% below the asking price to give yourself some room for negotiation, and then receive multiple phone calls from the broker handling the property. If you’re getting pressure to increase your offer, you’ll need to decide what to do. In some cases, if your offer is credible, you may decide to hold your ground and not increase the bid. You could wait a couple of weeks and see if the seller comes back and accepts the offer. You’ll want to be careful, though, because if there are other offers for the owner to consider, you could miss out on the deal.

Understand the Terms Needed for a Sale

Sometimes you may be able to be more competitive beyond just the price. In certain instances, owners will prefer certainty of closure. Or sellers might take a lower price to be dealing with a more credible buyer. If the owner has office space in the building they are selling, it might be possible to complete a transaction with terms that allow the owner’s business to stay in the building rent free for a period such as one or two years after the sale.

Make the Leap

Once you find the right deal, you’ll want to move forward, and sometimes the best way is to “just do it,” as Jordan Vogel noted on my podcast “The Insider’s Edge to Real Estate Investing.” Jordan made the leap into owning property and is the co-founder of Benchmark Real Estate Group. He has purchased over $1 billion of residential real estate in Manhattan since Benchmark was established in 2009. On the podcast, Jordan mentioned having buyer’s remorse after every sale, where he felt like he had overpaid. However, during our conversation we also pointed out the value in having confidence in what you’re doing and not second guessing yourself. If you spend a lot of time debating whether to go forward, you could lose out if someone else comes in. When you’re ready to make the jump, it’s time to act.

For the right approach to buying, you’ll want to understand the seller’s profile and review the timeline for the sale. Check the process that will be followed and find out if other offers are coming in for the property. By cultivating a relationship with your broker, you’ll be able to make a bid at the right time and secure a property which could generate returns that outperform the market.