How to Avoid Bad Commercial Real Estate Deals

How to Avoid Bad Commercial Real Estate Deals

How_to_Avoid_Bad_Commercial_Real_Estate_Deals

Understanding what a good commercial real estate deal looks like can be extremely valuable. Knowing if what looks to be a good deal is actually a really bad deal, could save your financial life. Commercial real estate laws are not set up for buyer protection. With commercial real estate, it is caveat emptor (buyer beware). And if you make a mistake, it could turn your dream of financial freedom into a complete nightmare. Discover how to ensure you never purchase a bad deal in this video on how to avoid bad commercial real estate deals.

How to Avoid Bad Commercial Real Estate Deals PodCast Episode

Commercial_Property_Advisors_Podcast

Here is a summary of what you learned in that video:

What is Due Diligence?

  • Doing Your Homework
  • Gathering Facts
  • Double Checking Assumptions
  • 2 Weeks to 2 Months to Complete

Why Perform Due Diligence?

  • Protects You Physically, Financially, Legally
  • Uncovers "Elephants" in the Room
  • A Good Deal Can Turn into a Bad Deal Quickly
  • Commercial Real Estate = Consumer Protection

7 Important Facts Before Starting Due Diligence

  • 1. Due Diligence costs Non Refundable Money (Travel, Inspections, Reports)
  • 2. You can ask for an extension
  • 3. You will ask for an extension
  • 4. Findings set up renegotiation of the deal
  • 5. Always keep your exit strategy in mind
  • 6. Have a business plan on the table going in
  • 7. Famous Due Diligence Proverb: "The plans of the diligent lead to profit as surely as haste leads to poverty." -- Proverbs 21:5

7 Tips That Will Save You a Fortune

  • 1. Be Present Physically, Emotionally, Spiritually
  • 2. Know How Many Days You Have (What's at risk?)
  • 3. 4 Contingency Clauses (Inspections, Finance, Title, Appraisal)
  • 4. Never believe verbal info, always get it in writing
  • 5. Get Property Manager to do a driveby inspection (go to crimereports.com)
  • 6. Always follow inspector around and ask questions
  • 7. Beware of "Pro Forma" or "Pre Forma" Numbers

A Critically Important Due Diligence Formula

  • ADD Annual Operating Expenses and Annual Mortgage Payments Together
  • DIVIDE by Gross Potential Income
  • EQUALS Break Even Point Occupancy

My Personal Due Diligence Checklists

  • Physical: In person viewing of the property, Market Comparison Survey
  • Financial: Verifying all the number by obtaining actual rent rolls, reports
  • Legal: Survey, Title, Code Compliance, etc

Due Diligence Checklists DOWNLOAD
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Comments

  1. Robert Klimt says:

    Thanks for taking the time to share your knowledge. I really appreciate your willingness to help.

  2. Peter Barraza says:

    I love the resources and help you are freely giving to the general public. I am thankful for it in every way and hope I can use the knowledge I gain from your videos to better my life in some way. Thanks!

  3. Peter,
    Thank you for the valuable information. You are an excellent teacher. I would like to ask you a question. My wife and I have always owned single family rental homes. That is going to be our “Old Age Income” (don’t plan on retiring). We own several of them free and clear (no mortgage). We like being debt free (The borrower is servant to the lender)! Never owned an apartment building (only a duplex). My question is: If we take the money that is in our houses and bought an apartment complex, do you think it would be more profitable? Do you think it would give us more income? For instance: what if we have a half Mil in four homes with an annual income of 45k net. Would that money produce more income in an apartment building? Thank you in advance for your advice and expertise.

    • Peter Harris says:

      You’d have to run the numbers to see. But as a quickly assessment, take a look at on LoopNet what the average cost per unit that multi family properties are selling for and then compare that to how much your single family homes would bring if you sold them. Next, compare the average gross rent on those units vs what you are bringing in on your SFRs. The real answer is…it depends.

  4. Great article keep up the great work!!Very useful information thank you again.

  5. Thanks so much for the information. I am 29 and constantly seeking knowledge in commercial real estate. Your teaching method is very beneficial to my growth. It’s very non-salesy.

  6. Thanks, Peter this is great information especially at this time when I am looking at a commercial office building. I needed to know how to perform a due diligence.

  7. Thanks peter this information is very helpful to me i like your information on taxes on the three deferent people
    i am the person number 2 person going to were the big boys play .
    do you know a CPA that understand what we do and were we are going Thanks Keith

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