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60 Part II:Getting Started Making Deals
To get the hang of all this, you need to spend time with other successful com-mercial investors. The fastest way that you can discover what’s possible is by being in a group of people who are finding and investing in commercial prop-erties that make sense. That way, when you run into the sellers who want too much, a part of you will get angry and say, “Wait a minute. There must be a way to have this commercial property purchase work. I know from watching other in my peer group that there are great deals out there.”
One of the most important things you need to do is to know and believe through to the core of your being that you can find great commercial deals. You need a burning passion and unstoppable desire to overcome and blast through any obstacles that inevitably get in your way (no matter how impos-sible it may seem). It’s incredibly important to have the mind-set that great commercial properties will come into your life because of the actions you take each and every day.
If this sounds like it’s too much to overcome, rest assured. We’re here to lay out a proven path to those big streams of potential deals. When combined with your powerful determination, our suggested path will allow you to catch those big fish.
Defining your property search
What type of properties are you looking for? You need to think through your ultimate goals to make sure that you’re fishing in the right ponds. It doesn’t make sense, for example, to be looking at only Class A properties (the mostly new, beautiful properties in really nice areas) if you want to get your career started by leveraging your way into a property. Oftentimes it’s the owners of Class C or D properties who are most open to using creative financing.
Many beginning commercial investors typically start out looking for commer-cial multiunit properties with anywhere from 5 to 50 units. Creative financing, including nothing-down deals, is possible in this market segment because it can be difficult for owners to get conventional financing. The reason is because lenders who make loans on commercial properties would much rather put together a loan on a 300-unit apartment building than they would on a 20-unit apartment building. It’s basically the same amount of work, and the lender makes much more on the larger property.
Aim to know enough about office buildings, small shopping and retail centers, and other types of commercial properties so that you can quickly analyze any deal you run across, even if it isn’t exactly the type of commercial property that you’re looking for. After you’ve spotted a good deal and have it under contract, you can pass the deal along to another commercial investor you network with.
Chapter 4: On Your Mark, Get Set, Go Find Deals 61
Developing relationships
After you’ve decided on the type of properties you want, the next step is to think through all the different ways that you may be able to connect with either the owner of the property or someone who knows the owner of the property. Perhaps it’s someone who’s aware of some of the life challenges that the owner may be facing. It’s unfortunate, but even commercial property owners end up getting divorced or having medical issues. Or maybe the prop-erty is having challenges that the owner himself can’t resolve.
How can you get to know people who are aware of the challenges that may come up with the property itself? Did you think of property managers? Good job if you did. What about county health department officials? These folks will know about commercial properties that are in trouble because necessary repairs have not been made. Don’t forget about everyone else who’s involved in the real estate process, including commercial real estate brokers, residen-tial real estate brokers, title agents, mortgage brokers, bankers, bankruptcy attorneys, and eviction services.
You get the idea here. There are lots of ways you can either get to know or find out about the owner of a property. In fact, our favorite method of buying a property is sitting down directly with the owner to find out what the owner wants. After you know this, you can often put together a great deal that meets the seller’s needs, yet still allows you to make a big profit.
Never, ever attempt to “go around” a real estate broker. Even if you put a deal together directly with the owner, make sure that the real estate broker earns a commission, whether or not that broker is involved directly in helping put the deal together. Commercial real estate is a small world and you can bet that word gets around how you “stole” a client from a broker to get a deal. If you get “stamped” with that reputation, other brokers will avoid you like the plague.
The relationships you create with other investors, with commercial brokers, with property owners, and everyone else in your life will be the lifeblood of your commercial real estate investing business. It will also be the difference between living a life that focuses only on material wealth compared with the wealth of living a life that also embraces your ability to create lasting connec-tions with other people.
Getting Leads on Commercial Property Investments
When finding commercial property leads, it’s like fishing in an ocean rather than a pond. A pond has a few varieties of fish, but oceans have many
62 Part II:Getting Started Making Deals
different fish and about just as many ways to catch them. It’s important to have an open mind when doing this because there is no “best way” to get commercial leads. We share some of our favorite methods in this section.
Newspaper ads and publications
You can often find owners of commercial properties who want to sell by look-ing at newspaper classified ads. The Wall Street Journal and The New York Times are good places to get started, especially if you’re looking to buy in an area that isn’t necessarily close to you. And we like these publications because they list properties from all across the United States.
Your local newspapers and even some trade journals can be good resources as well. Our local newspaper has a huge real estate section on Sundays as do most large cities. Trade journals are good sources, but most of the good properties listed are taken, so we mainly use them as potential relationship sources. Who knows, maybe the seller has other properties she planned to sell. You may be able to purchase them before they’re listed.
Internet sites of commercial real estate
A number of good Web sites can lead you to potential commercial real estate deals. The most well known is www.loopnet.com, which is sort of a multiple listing service for commercial real estate properties. Another well-known online resource is CoStar.com (www.costar.com).
Or, why not go direct to the source: national commercial real estate broker-age firms. They have their own Web sites with listings and valuable market reports. The beauty of Internet sites is that if the property that we find there is no longer available, we count it as all good because we have just made a valuable contact. We can either sign up for property availability alerts or we keep in touch with the realtor we made contact with. In many cases, we found that the property we checked on was no longer available, but we ended up buying another property that was soon to be listed.
Government agencies
Due to various guarantee and support programs, the federal government ends up owning thousands of properties that they want you to buy. While most of these are single-family homes, you can also find great commercial deals from time to time by using this resource — as long as you know how to find them.
Chapter 4: On Your Mark, Get Set, Go Find Deals 63
The Office of Property Disposal sells government-owned commercial proper-ties to the public. Check it out by going to www.homesales.gov, and then clicking on the Buildings and Land tab. Or try the U.S. Department of Agriculture (USDA) — Rural Development Real Estate for Sale (www.resales. usda.gov). Its Web site has for sale government-owned real estate and potential foreclosure sales for multifamily housing.
When a taxpayer defaults on his or her income taxes, the Internal Revenue Service (IRS) can file a lien against property owned by the taxpayer. At that point, the taxpayer can’t sell or refinance the property without first settling their debt with the IRS. If a property like this is foreclosed on, the IRS has 180 days after the foreclosure sale to redeem the property. Redeeming the prop-erty means that the IRS comes up with all the money to pay off the amount paid for the house at the auction. After the 180-day period, the IRS will lose its rights if it doesn’t redeem the property.
The Government Services Administration, better known as GSA, and the IRS have come up with a program where investors can provide the funds to redeem the property. Here’s a rundown of this process: The investor gives the IRS a minimum bid, and if the IRS is happy with the amount, it accepts the bid. Then the GSA puts the property up for public sale. The investor who put up the bid is automatically the first bidder for the GSA sale. As long as no
one else outbids the investor at the sale, the investor gets to purchase the property for the amount of the bid that he or she put up.
Realtors and brokers
When looking for deals, you’re looking for commercial real estate firms that sell commercial properties as their specialty. The Realtors and brokers that you get to know can be incredible sources of commercial properties for you over time. You want to focus on getting to know commercial brokers, but it’s also important to understand that everyone in your network who may know of a commercial property for sale is a potential source of another deal.
You can also connect with residential agents who have good relationships with clients who have used the agents for buying and selling homes and who also own commercial property. Some of our best commercial deals have come from residential agents! You’re typically looking for the residential brokers who have a client who owns just one or two commercial properties. When you find a property this way, you have the added advantage of being able to negotiate the price and terms with the owner before a commercial broker simply overinflates the owner’s expectations by saying, “I can get you $10 million, no problem. Just give me the listing.”
64 Part II:Getting Started Making Deals
How do you know when you’ve found the right real estate agent to work with? Our answer? You never find one right real estate agent! Commercial bro-kers earn their commissions by bringing you good commercial deals, so you should never limit yourself to working with just one real estate agent. You want to keep your options open. Commercial real estate is too big to limit yourself. There’s no way that one agent can bring you all of your deals.
You’ll find agents who suggest that you work only with them. When you do, don’t take the bait. Your response should sound something like this: “Mrs. Agent, I will definitely work diligently with you to take a close look at any commercial property you bring to my attention. Obviously, to meet the needs of my investors, I need to be looking at properties in many areas and from many different sources in a way that will protect my interests. I’ll work strictly with you on anything that you provide me so you can make a commission at closing, but I’ll do the same thing with other agents and brokers in my network. I’ll also do my best to make sure that you don’t spend significant amounts of time on a property that I have no intention of buying. Is that fair enough?”
Property owner associations
Join both the local and national chapters of any commercial property owner or manager associations, as well as any other associations that may include commercial property owners or brokers. Consider joining the National Association of Apartment Owners (www.naahq.org) and finding a local chapter to network with. You should also consider the Institute of Real Estate Management (www.irem.org) because it focuses primarily on owners of managers. Or if your interest lies in office buildings, join the Building Owners and Managers Association (www.boma.org). There are 92 local chapters nationwide. And for you shopping center lovers, take a look at the International Council of Shopping Centers (www.icsc.org). They’re known for deal making among themselves. Join the party.
After you join an association, how do you get the word out? Well, you can run either a small display or classified ad in the association’s newsletter. You can also stand up in meetings and announce your intentions, or just informally tell other members what you’re looking for. We suggest that you do more than the average investor would; that’s what it takes to get the great deals.
To get the most out of any association you belong to, try the following:
U Become a leader in the association. This means volunteering to be on the board and stepping up to help produce events. In other words, find a role in which you can be visible to the group.
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