Commercial Real Estate Buying Process: How to Get a Great Deal

Ask anyone that is actively involved in the commercial real estate market about the benefits of investing in NJ commercial real estate and they will likely tell you how such properties are a better deal than most residential real estate. You see, commercial property owners love the additional cash flow, the beneficial economies of scale, the relatively open playing field, the large market of qualified property managers and the bigger payoff from commercial real estate. But how do you find and purchase the best properties? How can you determine the great deals from the properties that will inspire lackluster performance?

Like most investments, success in investing in commercial real estate in New Jersey begins with a good blueprint. Our team at Tarvin Commercial Real Estate offers the following advice to help you evaluate a good commercial property deal.

 

Steps to a Great Commercial Real Estate Buying Process

Step 1: Play like an insider.

Learn as much as you can. Do your research online and speak with a qualified and knowledgeable commercial real estate professional to determine the best investments for you. For example, commercial property is valued differently than residential property; income on commercial real estate is directly related to its usable square footage. You’ll also see a larger cash flow with commercial property. This is simple to understand: You’ll make more money with a multiple family dwelling than you would with a single-family home. You’ll also learn that commercial property leases are generally longer than residential ones. And, if you’re prepared with cash, commercial property lenders are more willing to offer you financing. In fact, most require at least 30 percent down.

These insider tips will allow you to form your strategy and will help you negotiate the best deal for your particular situation.

 

Step 2: Form your plan of attack. 

Our real estate professionals at Tarvin Commercial can help you determine how much you can afford, how much you should expect to make on the deal, how many tenants are already on board, how much rental space you’ll need to fill, and more. These will be key questions in your search for the best property.

 

Step 3: Become familiar with commercial real estate terminology.

Metrics such as Net Operating Income, Cap Rate and Cash on Cash should be crucial to your decision. While a real estate professional can assist you in learning these terms and recognizing the best deals, it only helps to have a deeper understanding.

  • Net Operating Income: Calculated by valuing the property’s first year gross operating income and then subtracting the operating expenses of the first year. You want positive NOI.
  • Cap Rate: The “Capitalization Rate” represents the value of income producing properties. They estimate the net percentage value of future profits for cash flow.
  • Cash on Cash: When financing is involved, the cash-on-cash formula is used to compare first year performance of competing properties. It takes into account that the investor in question doesn’t require 100 percent cash to buy the property, and that the investor will not keep all of the NOI because he or she must use some for mortgage payments.

 

Step 4: Find motivated sellers.

If your seller isn’t motivated, he or she won’t be as willing to negotiate. Your real estate professional will assist you in determining their motivations, however, finding a great deal on NJ commercial real estate is often contingent on this step. A seller that is unmotivated is likely to demand a higher price tag for their property.

To learn more about the current trends in the New Jersey commercial real estate market and to speak with a Tarvin representative about the commercial real estate buying process, please do not hesitate to contact our team today. We look forward to hearing from you and welcome the opportunity to earn your business.

Let’s get started in finding you the best commercial real estate investment to suit your portfolio. Connect today!