UGLY Side of Commercial Real Estate

UGLY Side of Commercial Real Estate

UGLY_Side_of_Commercial_Real_EstateJust one really good commercial deal can set most people financially free, but the ugly side of commercial real estate is that also, all it takes is one really bad deal to financially ruin you for life. In this training, you’re going to discover the ugly side of commercial real estate investing, including a real life example of a terrible deal that has the potential to economically flatten the beginner investor who bought the property. You’ll learn priceless lessons on what NOT to do as his case example is broken down into great detail. You’ll find out that commercial real estate laws do not have the same consumer protection laws that residential real estate has so if you make a mistake, forgiveness may not be an option in commercial real estate. Finally, you’ll be equipped with the wisdom on how to ensure no commercial deal ever flattens you financially. Here is the UGLY side of commercial real estate:

 

The Ugly Side of Commercial Real Estate PodCast

Commercial_Property_Advisors_Podcast
Here’s a summary of what you learned in the video above:

Why This Deal was Bad

Negative Cash Flow: After discovering that the listing broker had not included several real world expenses on the cash flow spreadsheet, rather than cash flowing a positive $1,800 per month, instead the deal lost about $1,800 per month.
Predatory Lending Practices: The loan origination and interest rate costs were astronomically high and certainly well within the bounds of predatory lending.
Bad Back Up Plan: When it was discovered that the deal lost money each month, the listing broker suggested the buyer perform a condo conversion on the 18 apartment units. However, there was no evidence in the surrounding community to support if this strategy was feasible.
No Way Out: The contract the Buyer had foolishly signed included $30,000 of non refundable earnest money AND the seller could sue for specific performance if he didn’t buy it. So once our team had reviewed the deal and we had pointed out how bad of a deal this was, the Buyer tried to back out and forfeit his earnest money but the seller threatened to sue for specific performance as well which could have cost the Buyer an additional $100,000.

How to Avoid the Ugly Side of Commercial Real Estate

Get an Advisor: Before you sign a purchase contract with a seller, before you go out and do your first deal, make sure you have a very well qualified adviser on your side. The problem with a real estate broker as your adviser is they have a financial incentive for you to buy the property because when you close, they will earn a commission. Instead, you need a non-biased adviser who knows exactly what they are doing. They will help you navigate the murky waters of commercial real estate and help you to stay out of the ugly side.

Comments

  1. Yaakov Egert says:

    Hi peter, you say this fellow had a bad back up plan. I would say he had no back up plan since the condo conversion only came up after he realized it was a bad deal.

    All the best

    Yaakov Egert

  2. Yusuf Smith says:

    Excellent video Peter! This is one of your best. Including repairs, reserves, management, and new property taxes when calculating expenses for NOI is valuable information.
    It’s good to not only hear the good side of commercial investing but also the bad/ugly side so that the bad/ugly can be avoided.

    Invest and Prosper,
    Yusuf

  3. Pat Gage says:

    Awesome video. Great run down on what happened. Should of told the guy that he should report the Broker so that that doesn’t happen to anybody else.

  4. Jhoanna R. Jones says:

    I really love your passion for real estate and desire to help all CRE investors.
    Thank you.
    Jhoanna R. Jones

  5. Kenneth Minors says:

    Hi Peter, every time you post a video, I am amazed at how much more I learn about commercial real estate investing. This video really showed what happens when one is incompetent and doesn’t know what he/she is doing. It also shows the need to have qualified mentors/advisers on your team. I am hoping to buy my first commercial real estate property in several more months once I find a partner. I will keep this lesson in mind so we don’t get into a deal that can cost us our life savings and a lawsuit. Thank you.

  6. Hello Peter,

    I would think the very first mistake was to trust the broker and not have a real estate attorney look over the contract. He would have immediately had a field day with a red pen with that contract. Like you said he fell in love with the property. Thank you for sharing this situation it reminds us of what can happen when we lose our focus. The numbers tell the real story that is if you work them.

  7. Ed Crump says:

    Very good Information Peter, seeking an advisor’s input will definitely make all the difference when you start a new venture.

  8. Peter,

    Need a copy of the Master lease agreement. Owner has accepted my LOI-MLO for mobile park purchase.

    Thanks,

    Greg

  9. Good video, very informative.

  10. richard l khan says:

    HI PETER , VERY WELL SAID, I AM A COMMERCIAL BROKER WITH RE/MAX IN QUEENS. I ENJOY YOU SHOW. THANKS .

  11. Yasin Shahid says:

    I am looking for a mentor in commercial real estate can you help me?

  12. Eddie maldonado says:

    Hi Peter,
    I’m new to your portal and I really love the way you explain every situation in detail and I like to know what you think about a Comercial stip center in south Miami Florida. They’re selling it for 2.2 million 19 units all leased and an annual gross income of 292k. I did some numbers and I think it’s a good deal. What will you do?
    Thank you

    Ed m.

  13. cheyenne jones says:

    Hi Peter, Excellent video, but I have one question. Since the broker misrepresented the expenses, isn’t the contract invalid?

  14. Commercial Real estate brokers have an ethical responsibility to the profession . They also have a responsible duty to clients. I see many deals daily that they leave themselves wide open for huge law suits. It appears the practice has become so common and instead of selling cars or vacuums these guys go out and gather pretend buyers only to scam a seller in to their web of ( I get my commission because I brought a willing and able buyer ) even if the deal does not close. Very sad situation the field has become . It would be great to see the scammers put to justice. I know of some deals that are about to go front page against a huge brokerage. They know it as well. They sit back and laugh at a tem million dollar law suit knowing that corporate has billions. It will be a fun
    reality show to watch, how ever these scammers will go down and they have innocent families that will go down as losers as well. there should be a hot line for for deals about to go bad !! A way to go directly to the brokerage house and advise your brokers are about to cost you millions !! For a small fee let’s nip it in the bud.

  15. Peter if a seller back out on a deal could the buyer sue the seller or could their be recourse for the buyer. Thanks

  16. Peter,I have invested in A few commercial property’s. I was a owner/user at the time. Luckily I didn’t make any huge mistakes and made out good at the sell. Now I am serious about some real investing in CRE and want to say thanks for the info. It has been very helpful and it made me take caution in my aprouch to investing.

  17. Harriett Harriett says:

    I appreciate this one example, but it is not enough. Do you have anymore examples? Please, Please, Please, Pretty, Pretty Please share them. Thank you.

  18. Thanks for the video.Notes well taken and understood.
    I am new to this business and I bought your book, ( ebook). I want to know if you have a school where one can take a short course on real estate? Thank you.

  19. Eureka Skinner says:

    I just want to say thank you for sending these helpful videos. I would love to have the opportunity to be educated by you personally Mr. Harris. Im pretty sure there is a long list however, I would like to be added as I begin my journey as a Realtor. I am part of an excellent team here in AZ but we primarily focus residential. Take care and please keep sending the videos.

  20. Some people have no idea regarding the different types of risk factors associated with the investment in the commercial property. Commercial property is considered as one of the most profitable ways of investment which assure steady cash flow to the investor but a bad commercial property deal could financially ruin an investor’s life. So, an investor should be very cautious while making any major investment in the commercial property. A proper strategy is the key to make a profitable deal. Besides, the market condition needs to be analyzed prior to the deal.

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