Anatomy of a Commercial RE Investment – Part 1

I just answered a question on commercial real-estate investing and thought that there’s no better way to explain the process than by showing …

… coincidentally, I have been working on a commercial RE deal in the $2.5 mill. price range, so I thought that I should simply share.

Warning: like most deals, this deal could simply fall through at the first hurdle. Let me explain by sharing the story so far:

All good real-estate transactions, in my opinion, start with finding a good broker who is working for you.

As it happens, I have a close friend who is a commercial real-estate broker who meets the ‘trifecta’ that I mentioned in that last post: (a) I like/trust him, (b) he works with commercial RE in the area/s that I am interested in, and (c) he invests heavily in commercial RE himself (buy/hold).

I have been pestering him for the last 4 years to find me a deal … interestingly, and this is something that you should take mental note of, he says that he is asked by most people he meets to ‘find them a deal’ but almost none ‘pull the trigger’ …

… so, forgive your broker if they don’t fall all over themselves with excitement until you actually close on your first deal with them 😉

Anyhow, finally a deal came up that seemed to fit my criteria. I didn’t even request financials at that stage or see the property: on the strength of my friend’s recommendation (it was a deal he wanted, but the $700k deposit was a bit too steep for him) I authorized him to put in a written offer.

I don’t recommend that you do this, you will pick up where this post leaves off …

Anyhow, the current owners occupy the premises (they were planning a sale/leaseback i.e. they sell the property to me, then lease 2/3 of it from me on a 5 year lease) and decided to first see if they could simply refinance their loan and take some cash out.

Naturally, in the current market this has proved difficult, so they have put the property back on the market … my friend is the listing broker, so I have first ‘dibs’ on the deal.

So, I am now at Stage 1: I have a deal in front of me; presumably, motivated sellers (we’ll find out, if they accept the new offer); and, I need to decide whether and how to proceed.

In Part 2 I’ll step you through exactly how I decided this was the ‘deal for me’ …

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8 thoughts on “Anatomy of a Commercial RE Investment – Part 1

  1. This is gonna get good. I hope things work out well on this deal for ya Adrian, and maybe I can learn a thing or 3 from ya on this 😉

  2. Watching this unfold will be very educational…can you do some of these of finding the accountant as well? Obviously you knew this guy before, but if you did not know someone personally, where would you start today for an area new to you (say you wanted an accountant in Houston TX because that is where you were moving to in the states…wouldn’t you need one in the States in addition to one for Australia? I was advised by a friend who is a tax accountant (for a bank, tho) that I should find an accountant who is physically close to me, for all the paperwork that will need to be “shipped” I believe (and discussed I assume?) yet am in an area where I have few personal contacts, and none in that area. Suggestions?

  3. @ Scott – The deal is currently back “off the market” … the owners are still going to try and refinance; I’m pretty sure it will come back. In the meantime, it’s the analysis that’s interesting … stand by for Part II tomorrow (I open the kimono on the numbers) …

    @ Diane – Great question; I can only tell you that when I set up in the US my Aus accountant (who had lived in San Fran before he moved back to Aus) contracted a friend to search out Chicago-based attorneys and accountants for us. Since then I met (socially) my realtor and RE attorney (who will handle my big deals, like this one … he referred me to another RE attonery whon specializes in residential for my smaller deals).

    Let’s throw it open to readers for how they found the advisers that they need.

  4. Pingback: Anatomy of a Commercial RE Investment - Part 2 « How to Make 7 Million in 7 Years™

  5. nice post, looking forward to the full disclosure in how this all turns out. The education in Real Estate will help us all.
    Now , something unrelated to Real Estate
    I was recently reading a column on Dividends. I personally feel investing should be a part of everyones quest for their number, or at least something after they reach that number. Your choice, but should be included, so This is an interesting read on Dividends, and I’d love for everyone to give their 2 cents on this(including you,Adrian) .I am including a link to the story—->

  6. What an interesting point of view. I can’t believe that you actually found something that fit your criteria. I have been looking into this and haven’t been able to find anything that is worth the investment.

  7. Pingback: So, you want to invest in commercial real-estate …- 7million7years

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