Daniel Bailey Explains What to Look for in a Commercial Deal

Real estate novices may not know what to look for in a commercial deal. Understanding how the real estate industry works is crucial to a novice investor’s success. When a novice investor enters into a real estate deal, they may or may not be able to take advantage of its best qualities. Daniel N. Bailey, the CEO of HollyHills, explains to Long Beach investors how to judge the quality of a commercial deal.

Commercial deals are an important way to ensure a person’s financial future. Commercial deals are a great way to foster long-term wealth. When business owners first start investing in real estate, they are able to take advantage of higher returns. While the return on investment is high in real estate, the risks are also higher than in other types of financial transactions. If you want to make a commercial real estate purchase, here are the 5 most important things you should look for.

1. Location

Location is one of the most important considerations for a commercial deal. The location of the property in relationship to highways, transportation hubs, population centers, and residential features will make a big difference in the price you pay. Commercial properties include buildings as small as four-unit apartment buildings and warehouses of well over 1 million square feet. There is a great deal of variety among commercial real estate deals as a result.

Before purchasing a commercial property, you should be aware of the advantages and limitations of its location. When you understand how the property will be used, you will have a better idea whether it will make a good investment.

Another tip for choosing a location means looking into location-based finance opportunities and incentives. There are many government programs, such as Opportunity Zones, based on the location of the property. These programs mean financing security and special tax considerations.

2. Affordability

Before buying the property in a commercial deal, make sure you can afford it. When purchasing a commercial property, a 30 percent down payment is typically required. Many lenders also require buyers to have a number of months of reserve mortgage payments in case of financial hardship. Before making an offer, you need to understand that your money may be tied up for an extended period of time, from several months to possibly over a year. You will need to have the funds elsewhere to keep your business running. Utilities, carrying costs, mortgage payments, and other considerations need to be budgeted for.

If you purchase a property that you can’t afford, you may find that you are in significant financial trouble and may risk losing your business or your personal assets.

3. Cash Flow

You should have a good working understanding of the cash flow that could be associated with your new site or building. You should understand your expenses, revenues, and tax considerations. Be aware that commercial realtors sometimes bend the truth to come up with attractive profit and loss projections for their clients. Always run your own analysis and make sure that you fully understand what you are getting into.

Take a close look at the profit and loss statement in particular. You need to know where every dollar goes. Be careful with the owner’s or realtor’s projections for the future revenue from the property. These figures are likely to be based on occurrences that may not come to pass.

4. Know Your Property

You need to fully inspect your prospective deal before you put any money down. The location and the financial numbers are important, but you need to make sure that your building is solid, and that the owner is not hiding any significant problems with its construction. For example, you need to make sure that the plumbing and heating are fully up to date to avoid problems with high maintenance costs in the years to come. It is likely that the previous owner ignored or glossed over some physical problems with the property.

5. Market Conditions

Any prospective purchaser should understand the supply and demand in the real estate market. Your property may be worth a great deal due to increased demand, but if there is a glut of properties on the market, the price you receive for your investment could be driven down. If your property has been on the market for too long, you may assume that it has some serious problems, either with market demand or with the physical attributes of the property.

Understanding What Makes a Good Deal

When you keep these 5 points in mind, you should be able to judge whether a commercial real estate deal in Long Beach is right for you. Be sure that you fully understand the finances, physical amenities, and local market conditions before you buy. Daniel N. Bailey reminds investors that they need to keep a close eye on the real estate market and make sure that they are not being deceived by a realtor or property owner.