Commercial Purchase Loan

If you plan to buy a commercial real estate, make sure to contact a real estate agent who specializes in commercial properties.

Purchasing a commercial property is a wonderful investment that ensures you of returns for many years. If you want to invest your money to day into a worthy investment, then a commercial real estate is for you.

Here are several tips in helping you buy a commercial real estate:
• After finding the perfect commercial property for you, make sure to have a valuation prepared for it and get a land information memorandum or LIM from the local council. These important documents help you acquire more information in assessing the value of the property and its potentials.

• Getting pre-approved is a wonderful way to save time by finding out the type of commercial real estate you can afford to buy. You would only be wasting time looking at $2 million buildings while you can afford only $300,000.

• Take into consideration a low down payment and longer-term loan to be able to preserve your capital, put it to better use, and keep your cash flow high. Furthermore, it lets you redeploy the capital savings to other profit-earning business undertaking.

• Ensure that you know the market you are buying in. Hire a well-informed realtor to find a new commercial property for you. A trustworthy and capable agent helps you save time, update you on demographics, comparable sales, growth plans and new development in the area.

• Buy commercial real estate for the right reasons and find out if you can profit and benefit from buying it instead of just renting it.

• It is also preferable to buy a commercial property that has more square footage than what you need because you can always make an expansion later. Furthermore, it can give you more rental earnings later on.

• Make a decision on what kind of entity you should use to purchase the commercial property. Your options include buying as individual, through a trust fund and through a company. Your lawyer or accountant can help you decide on the best vehicle to use.

• Partner with another entrepreneur in your EPC if it is difficult to come up with the down payment. Bear in mind that the operating business of your new partner will also be examined to commit to your loan. Use good judgment always when looking fro a business partner. Ensure that you stipulate clearly a buy-out provision in your agreement and other documents in advance.

The foundation of a successful commercial property purchase is the returns that you will get; therefore, the value of the lease is paramount. Check the current term of the lease and the financial strength of the tenant.

If the tenant is a company, determine if a company representative has provided a personal guarantee. Find out more about commercial real estate from your realtor or from a professional who can help you choose the right commercial real estate to purchase.

There's an old joke in commercial real estate: If you think nobody cares you're alive, just miss a few mortgage payments.

Unfortunately, there was a lot of that going on during the credit crisis that started in 2008, as commercial real estate values went into a freefall. According to the Massachusetts Institute of Technology Center for Real Estate, commercial property values fell by 10.6% in the fourth quarter of 2008, alone – the biggest price drop since 1984.

But to savvy real estate investors, times of lower prices typically reveal genuine investment opportunities. For instance, according to a survey by Marcus & Millichap Real Estate Investment Services, of 1,129 commercial property investors, 51% planned to increase commercial real estate allocations during the 2008 credit crisis.

So, despite the significant drop-off in acquisition plans from the peak in 2005, more than half of investors still planned to increase their commercial real estate holdings. A mere 11% planned to reduce their real estate portfolios in 2009.

Finding a Good Commercial Real Estate Deal
Ask any real estate professional about the benefits of investing in commercial property and you'll likely trigger a monologue on how such properties are a better deal than residential real estate. Commercial property owners love the additional cash flow, the beneficial economies of scale, the relatively open playing field, the abundant market for good, affordable property managers and the bigger payoff from commercial real estate.

But how do you evaluate the best properties. And what separates the great deals from the duds?

Like most real estate properties, success starts with a good blueprint. Here's one to help you evaluate a good commercial property deal.
1. Learn What the Insiders Know
To be a player in commercial real estate, learn to think like a professional. For example, know thatcommercial property is valued differently than residential property. Income on commercial real estate is directly related to its usable square footage. That's not the case with individual homes. You'll also see a bigger cash flow with commercial property. The math is simple: you'll earn more income on multifamily dwellings, for instance, than on a single-family home. Know also that commercial property leases are longer than on single-family residences. That paves the way for greater cash flow. Lastly, if you're in a tighter credit environment, make sure to come knocking with cash in hand. Commercial property lenders like to see at least 30% down before they'll give a loan the green light.

2. Map Out a Plan of Action
Setting parameters is a top priority in a commercial real estate deal. How much can you afford to pay? How much do you expect to make on the deal? Who are the key players? How many tenants are already on board and paying rent? How much rental space do you need to fill?

3. Learn to Recognize a Good Deal The top real estate pros know a good deal when they see one. What's their secret? First, they have an exit strategy – the best deals are the ones where you know you can walk away from. It helps to have a sharp, landowner's eye – always be looking for damage that requires repairs, know how to assess risk and make sure to break out the calculator to ensure that the property meets your financial goals.

4. Get Familiar With Key Commercial Real Estate Metrics
The common key metrics to use for when assessing real estate include:
• Net Operating Income (NOI)
The NOI of a commercial real estate property is calculated by valuating the property's first year gross operating income and then subtracting the operating expenses for the first year. You want to have positive NOI.

• Cap Rate
A real estate property's "cap" – or capitalization – rate, is used to calculate the value of income producing properties. For example, an apartment complex of five units or more, commercial office buildings, and smaller strip malls are all good candidates for a cap rate determination. Cap rates are used to estimate the net present value of future profits or cash flow; the process is also called capitalization of earnings.

• Cash on Cash
Commercial real estate investors who rely on financing to purchase their properties often adhere to the cash-on-cash formula to compare first-year performance of competing properties. Cash-on-cash takes the fact that the investor in question doesn't require 100% cash to buy the property into account, but also accounts for the fact that the investor will not keep all of the NOI because he or she must use some of it to make mortgage payments. To uncover cash on cash, real estate investors must determine the amount required to invest to purchase the property, or their initial investment.

5. Look for Motivated Sellers
Like any business, customers drive real estate. Your job is to find them - specifically those who are ready and eager to sell below market value. The fact is that nothing happens - or even matters - in real estate until you find a deal, which is usually accompanied by a motivated seller. This is someone with a pressing reason to sell below market value. If your seller isn't motivated, he or she won't be as willing to negotiate.

6. Discover the Fine Art of Neighborhood "Farming"
A great way to evaluate a commercial property is to study the neighborhood it's located in by going to open houses, talking to other neighborhood owners, and looking for vacancies.

7. Use a "Three-Pronged" Approach to Evaluate Properties
Be adaptable when searching for great deals. Use the internet, read the classified ads and hire bird dogs to find you the best properties. Real estate bird dogs can help you find valuable investment leads in exchange for a referral fee.

The Bottom Line
By and large, finding and evaluating commercial properties is not just about farming neighborhoods, getting a great price, or sending out smoke signals to bring sellers to you. At the heart of taking action is basic human communication. It's about building relationships and rapport with property owners so they feel comfortable talking about the good deals - and doing business with you.

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