I am dealing with a very hard seller of Commercial property in Cabarrus County NC. The sellers are from Brooklyn, NY and do not understand the local market. They are under the impression that all commercial property no matter where it is located has the same value. the market here has taken a beating with several companies closing their doors and moving jobs elsewhere. Which makes for an abundant supply of empty buildings available. In the last threeyears we have lost over 8,000 jobs in this county and the trend is continuing. My question is how do you make a seller who is out of touch realize the severity of the situation here. I have sent them all the data about the area and they seem do dismiss it as me trying to get them to sell their property dirt cheap. How do you convince them when all others things have failed. If anyone can give me advice on how to approach this it would be greatly appreciated.
Hello Dean:
The strategy I generally employ with sellers of commercial property is the simple explaination of two items.
1. The CAP rate and 2. The cash on cash return. These two items generally tell most of the story with all commercial investment property. Right now, most areas of the country are selling commercial property based on between a 51/2 and 7 % CAP rate. The cash on cash, depending on the loans should, at worst, be positive, even if it is as low as 2 to 3 %, it's still positive.
If the commercial property is vacant then we do not have a CAP (capitalization) rate to offer a buyer and the only buyer would likely be a user or potential user of the property.
I explain to the seller that an investor can invest in government bonds to return 3.5 to 4% on their money with NO rick what-so-ever and their money is guaranteed. For the investor to invest in real estate, it must return more like the 5.5 to 7% above noted in the CAP rate. This seems to work for me most of the time. Hope this helps you.
JC in Vegas
Sometimes it helps to explain that your local banks just won't finance it at that price. You might suggest having an appraisal done to establish a value that will sell (and qualify for financing).
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