Why Are You Buying A Commercial Building Without Knowing This Stuff?

By
Commercial Real Estate Agent with Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker AZ BR 528507000

Why Are You Buying A Commercial Building Without Knowing This Stuff?

 

Someone called me this AM, sweet person, noticed that I have a lot of Mohave County AZ Commercial Real Estate listings.

 

I guess I must be livin' right!

 

She's thinking of buying a building (told me where it was) and wanted to pick my brain, do I do property management - what could the units rent for?

No (been there, not my drug of choice), and wait a minute.

Where's your agent?

 

I don't have one.

 

Where's the listing agent. (One guess!) FSBO.


OK, you're not MY client so I'm not going on record with market rents, return on investment, etc (although as a Mohave County AZ CRE Broker, we DO that for our clients - it's what we do)

 

BUT you're cool, so I am going to advise you to HIRE a commercial leasing agent/property manager (we have good connects, ask us) and formally engage them to represent you as a landlord.

You will need someone to:

 

  • Assess rentability of the property. What kind of location? Amenities? Accessibility? Nearby residential to service? Walkability? What about nearby businesses that could symbiotically coexist? ALWAYS start with the END in mind.

  • Along the same lines . . . who is the ideal tenant ? How and where do you find them? CAN you find them and attract them to the property? At what price? Does that price pencil out for you?

  • Income analysis. What IS the target rental rate? Expenses? And how does that translate into return? You don't want to overpay for the property and struggle to keep it full. Know this GOING IN.

  • Marketing plan. What are the best ways of attracting quality tenants? Can your broker do this? Some of these marketing methods are pricey - make sure they can cover all the basis without cutting their own corners. And how well connected are they?

  • Quality tenants. This is HUGE. Your rep should be carefully vetting businesses, checking corporate standings, reviewing financials and if it's a startup, business plan.

  • Someone needs to personally guarantee the lease. And that someone needs to likewise be checked out. Guaranty = landlord can go after that person legally in event of default. But what if there is no blood to squeeze out of the turnip?

  • Deposit. Unlike residential real estate, there is no Statute that limits deposit amounts. Evaluate the strength of the tenant and cost of a disaster, and get enough skin in the game up front to provide some degree of assurance.

  • Maintenance. A decent property management company will have licensed contractors at the ready for TIs, repairs and maintenance.

  • Service Contracts. Big ticket items like HVAC are expensive to repair and maintain, and there are companies who offer service contracts (kind of like a home warranty) for them. Find out who does and the cost. Then, negotiate it into your deal. Everyone wins when the cooler is working in July!

  • Insurance. Require enough from your tenant to cover their contents, liability, employees etc. and make it part of the deal.

 

Truly, buying an income producing commercial property IS A BUSINESS and for that, you need a business plan.


Start by hiring good help.

 

 

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Real Estate General Information
Groups:
Bartender, Make it a Double

Spam prevention
Show All Comments
Rainer
74,652
Ronald Curtis
Manes Realty Group - North Palm Beach, FL
Negotiating the best price and terms for my Buyers

Hello Candice......

You certainly provided a lot of very important information for anyone who is thinking of buying a rental building. Needless to say, ROI is the most important. Without factoring 5% vacancy, I would suggest multiplying the gross rent by 7. You should not pay more than this number if your are looking for a decent return.

Oct 10, 2019 10:08 AM #1
Rainmaker
1,506,487
Beth Atalay
Cam Realty and Property Management - Clermont, FL
Cam Realty of Clermont FL

Hi Candice A. Donofrio, commercial real estate is a different kind of beast, agents who have no knowledge need to stay out of it and buyers MUST hire a knowledgeable professional to assist them with all aspects of the transaction.

Oct 10, 2019 10:28 AM #2
Rainmaker
1,461,985
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, Blackstone Realty Group - brokered by eXp Realty - Kalispell, MT
The House Kat

There is a lot of information that is necessary before making a decision to make a commercial purchase/manage a commercial property. That buyer was very lucky she contacted you so she could hear what is necessary. You know commercial!

Oct 10, 2019 10:39 AM #3
Rainmaker
4,539,710
Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy

Candice,

Good for you for teaching some of the principles of commercial real estate to this woman.  So many don't realize that it is not like. all real estate.  A

Oct 10, 2019 10:40 AM #4
Ambassador
2,896,871
Anna Banana Kruchten CRB, GRI, WLS
Phoenix Property Shoppe - Phoenix, AZ
603-380-4886

Excellent post Candice A. Donofrio . Since I've only sold residential properties I make sure I have a great commercial agent to refer out.  Lots of good info here!

Oct 10, 2019 02:45 PM #5
Rainmaker
428,416
Steffy Hristova
HomeSmart Elite Group Tempe AZ Tel: 480-966-9353 - Tempe, AZ
Tempe AZ Realtor - Your Home Close to Your Work!

Candice, Great information for Buyers of Commercial real estate. I hope they will read it several times and prepare to ask relevant questions the professionals they will hire. Thanks for taking the time to write it down.

Oct 10, 2019 02:58 PM #6
Rainmaker
67,465
Kris Collis, Associate Broker
Smart Way America Realty - East Stroudsburg, PA
Professional Results you Expect 570-507-7510

Wow, love that you're training customers that agents do not work for free, especially with all the make it or break it variables in Commercial.  And, pointing a cool person in the right direction solidifies your reputation, again and again and again.  

OK, you're not MY client so I'm not going on record...."  

Keeper line right there!!

Oct 10, 2019 03:59 PM #7
Rainmaker
2,782,741
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Every once in a while, we got these people about things they know everything but actually know zip.

Oct 10, 2019 08:56 PM #8
Rainer
482,489
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Lots of excellent advice, however, when a commercial buyer lacks any experience and more importantly essential knowledge about commercial real estate, they usually  end up losing a big portion of their initial investment by not employing an experienced and knowledgeable agent, 

When meeting commercial prospects that are not knowledgeable and/or lack experience, I inform them about my nominal consulting fee to educate them about the elements and issues inherent with commercial real estate. 

I get my prospects to agree to a LOI and attestation of their complete understanding about commercial real estate and their responsibility of due diligence by acquiring all information necessary to ensure their project or commercial real estate goals and objectives could be achieved. 

Oct 10, 2019 10:22 PM #9
Rainmaker
637,480
Debra Leisek
Bay Realty,Inc Homer Alaska - Homer, AK

This certainly very good information for anyone considering buying a commercial building. You pretty much spelled it all out 1 2 3 

Good Maintenance venders are very important ... things can take a real turn for the worse with bad maintenance 

Thank You!

 

Oct 10, 2019 11:02 PM #10
Rainmaker
1,712,354
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker and Attorney Licensed in DC, MD, VA,

I agree with all the other comments - you have really laid it out here!  Well deserved feature content! 

Oct 11, 2019 05:01 AM #11
Rainmaker
2,476,698
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Anyone on a journey, discovery or adventure of value should be asking exploratory questions. This is what triggers meaning/depth the true prize of all

Oct 11, 2019 08:04 AM #12
Ambassador
4,050,222
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Candice:

Great advice here! Hopefully it will sink in for that caller, or anyone else who really can benefit from your wisdom, education and guidance in the commercial market.

Have a terrific weekend!

Jeff

Oct 11, 2019 11:19 AM #13
Rainmaker
798,986
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

I have several clients who want commercial properties, I usually work with an agent/broker who used to be in our company just dealing with commercial, and now heads up an office for a commercial outfit. He pays me a referral fee and I know my clients get looked after. 

Oct 12, 2019 08:31 AM #14
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
741,350

Candice A. Donofrio

928-201-4BHC (4242) call/text
Ask me a question
*
*
*
*
Spam prevention

Additional Information