You can’t build a commercial real estate portfolio if you don’t have deals to buy. That’s why it’s critical to know where to look for properties and to establish a regular habit of analyzing deals.
Finding these deals isn’t as easy as pulling up a marketplace like you might with residential homes. With commercial real estate, you’ll need to take on a more active role in hunting for properties, contacting sellers, and making deals happen.
Here are nine methods you can use to get your search started and find the perfect building for your real estate portfolio.
Directly Contact Brokers
Contacting brokers is the easiest way to get started. Go on the internet and see what is for sale on Loopnet.com, Costar.com, and your local multiple listing service (MLS). Reach out to the listing agents for properties that interest you.
Networking events are also a great way to meet hungry brokers who might be able to source some deals for you. It’s important for you to not only be respectful to these agents but to become friendly with them. When a great deal comes up they can call anyone, and you want it to be you.
Make a habit of tracking the type of properties you’re interested in buying. Whether it’s big box drug stores (CVS or Walgreens) in the southeast, high rise office buildings in Seattle, or twenty- to forty-unit apartment buildings built in the 1980s in the Bay Area, track everything that comes on the market or is in play that fits your criteria.
When something becomes available, contact the listing agent, let them know what you would pay, and then consistently follow up with the listing agents every few weeks.
The next method involves directly contacting property owners. A title company can set you up with a mailing list for your market, and you can hire a company to send the mail out. You’ll need to be specific in mailing letters to owners of a certain property type and neighborhood, size of building, vintage, etc. Let them know that you are a principal, not a broker, and that you want to buy their property. You might not have a high success rate with this method, but if you get even one great deal out of it, it’s worth it.
Besides calling brokers that have properties for sale, you can also look to see what has sold in the particular type of property and neighborhood that you are interested in. Call the brokers involved and let them know that you would have bought those properties and you are interested in similar deals. Periodically contact these brokers. The next time they have a similar property for sale, they might contact you first.
Getting to know brokers that specialize in the type of property you are interested in will allow you to obtain access to most of the properties that become available.
While most buyers are interested in one particular property type, there exists a type of buyer who buys just about everything on arbitrage. For example, this buyer might know that office buildings typically sell for $100 per square foot in an area, so if something hits the market at $70, it’s time to make a phone call.
These buyers, being opportunists, typically purchase everything from office, retail, industrial, land, apartments, and even single-family homes. These are the real entrepreneurs of the business, and this is a valid method to use if you’re open to many property types and markets.
Big Game Hunting
This next method refers to the tracking of a specific large property. Large properties create an excellent economy of scale, as their large size creates efficiencies in financing, investors, and management. But that same scale also equates to drastically larger downside risk.
In general, it’s much harder to find a bargain on the larger properties, as there are less of them to go around. The owners (both the buyers and seller) are typically more sophisticated with greater resources, and the properties tend to be better managed with less upside, but opportunities exist if you choose to look for them.
Clustering of Properties
Another deal-hunting method is to cluster in a particular area. When your home market becomes overheated and you need to head out of town to find properties that work, it’s important to not just purchase one building in an area far from home, as it’s both inefficient and impractical.
Instead, buy multiple properties that are a short drive from each other. This allows you to easily visit all of them at once, and it helps you to create a presence in that particular market. When deals become available, you’ll be among the first to get a call from listing agents.
Neighborhood speculations refers to tracking everything that comes on the market in a particular neighborhood. If you think you found the next A quality neighborhood at B or C quality pricing, and you are willing to speculate and be patient, this approach can work for you.
Be warned that it can backfire, too. When the economy and rental market turns, these transitioning areas often are devastated and wipe the owners out, so please make sure that the fundamentals are healthy for each property before you buy.
A Fickle Criteria
Lastly, you can choose to create a very specific criteria of what works for you. From the size of the property, to the neighborhood, vintage, number of units, leasable square footage, parking, amenities, and more. Then target everything that fits that criteria and let the listing agents know of not only your detailed interest but what you will pay.
Sometimes, being picky and patient is the way to go. Be prepared to not land many deals when your criteria is particular, but as long as you keep searching and making offers, eventually you will close a winning deal.
This article was adapted from the book Billion Dollar Portfolio written by Brent Sprenkle. Have you read?
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