Is Now a Good Time to Buy Commercial Property?

Is now a good time to buy commercial property? Interest rates higher than cap rates, high prices and future demand uncertainties have confused many investors. Discover the 5 opportunities that make now a great time to buy commercial property.

It’s the Best of Times and the Worst of Times

Now is both the best of times and the worst of times. It’s a very bad time to buy commercial property if you don’t know exactly what you’re doing because:

• High Interest Rates: Interest rates have reached their highest levels in 20 years and they are drastically reducing returns.
• High Prices: Prices increased dramatically over the past few years and haven’t come down.
• Cap Rates Lower than Interest Rates: As explained in this video, cap rates are less than interest rates, which makes many investors scratch their heads in confusion over how to buy commercial real estate in such an environment.

However, it can still be a great time to buy commercial real estate depending on the location, property type, financing structure as well as other circumstances. There are always commercial real estate opportunities at every phase of the market cycle. Plus, with all the economic uncertainty and challenges, there is less competition thanks to some people sitting on the sidelines. There are two kinds of investors in our current market; those who sit on the sidelines and those who find ways to buy good deals, like these two real world examples:

• Seller Financing: Protégé Dr Elena negotiated seller financing at a much lower rate than a bank loan, making her deal work (that otherwise would not have with bank financing).
• Location Location Location: Protege Ken was not able to find a deal with good returns in his home state of California so expanded his search to Kentucky where he purchased a 24-unit value-add property with a million dollars in upside!

Don’t sit on the sidelines but instead, always be searching for good deals like Dr Elena and Ken. All it takes is one commercial deal to dramatically change your financial life forever. And if you acquire one property per year, like Protege Dave did, you’ll eventually have a tremendous portfolio!

Off-Market Sellers

The right deal in today’s market is not going to magically fall in your lap. You must have a very effective way of connecting with off-market sellers and apply that approach consistently over a period of time. And then, you must be patient in allowing your seller marketing efforts to bear fruit.

No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant. — Warren Buffett

5 Opportunities in Today’s Market

There are 5 opportunities in today’s commercial real estate market to buy right:

#1: Commercial Loan Maturity

Single family home mortgages oftentimes mature in 30 years but commercial loans typically mature in 5, 7 or 10 years. Commercial property owners will have loans maturing soon and may not be able to refinance in this high interest rate environment due to a low Debt Coverage Ratio. When a commercial property owner must sell, you can sometimes negotiate a much better deal.

#2: Low Interest Rate Loan Assumption

Some commercial loans have low interest rates and still may have 5 years or more before maturity. Structuring either an assumption or a Subject To arrangement would allow you to step into those favorable financing terms. For example, if you can find an owner who locked in financing at 3.25% for ten years and still has 5 years remaining on the loan, when you negotiate the deal, you can assume the loan and benefit from this low interest rate for five more years. Then hopefully in five years the interest rates are better and you can refinance at a lower interest rate.

#3: Creative/Seller Financing Techniques

High interest rates are wiping out net cash flow and killing deals. Our high interest rate environment is a great opportunity for implementing creative financing strategies that give you an advantage over your competition. When you apply creative financing techniques, you get to create your own deal and therefore can negotiate lower-than-market interest rates and/or terms. Creative financing is an essential skill for commercial real estate investors in today’s market.

#4: Value Add Deals

Value-add deals may be more difficult to find, but they are still out there. We have tried and true techniques to find off-market deals, which allow us to work directly with the seller and locate value-add deals. As I mentioned earlier, recently one of our students bought a 24 unit in Kentucky that will increase in value $1 million over the next 24 months. So, there are still great deals out there, you just need to learn how to find and create them. Now, some of the deals that you find may not be a candidate for value-add unless you dig deeper. And you’ll notice in a lot of our student testimonials on our Real Deals Page, we have them dig deeper and find these opportunities to create massive value.

#5: Expand Your Location Horizons

As you have heard your whole life, in real estate, its all about location, location, location. Just like Ken, be willing to expand your location horizons. The United States is a very big country with many nooks and crannies. There are hidden gems scattered all across America. Don’t make the false assumption that all areas are equal. Some locations have much greater returns than others.

Every Successful Investor has a Mentor

Whether it be knowing the best locations, how to connect with off-market sellers, how to structure the best creative financing, and knowing what deals are good and which ones are bad, you need a mentor on your side to help you. In fact, every successful investor has a mentor. Get yours here: Commercial Property Advisors Protege Program