OfflineHas anyone delved into Commercial REO's??? It seems like more and more are available and the profits appear larger due to the higher purchase prices.
Does anyone know how to value the properties? What are the typical discounts (ex...45%, 65% discounts)????
What's the best way to get started in this niche market?
I've come across tons of residentail REO books and information but limited information out there on flipping Commercial REO's......
Any information will be helpful!!!
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Esmirna Maloon
Commercial properties tend to follow the trends of residential real estate ... but off a year or so. What I mean is as foreclosures hit residential it took about a year before they largely hit the commercial.
Commercial real estate deals off the cash flow and not necessarily the value as we may think of for residential.
Some terms you will need to understand in commercial are:
Cap Rate: Also known as capitalization rate. This is the net operating income divided by the purchase price of a property. 10 cap or higher is general cash flow ranges in commercial.
Net Operating Income (NOI): Gross rents minus all expenses except the mortgage equals the NOI.
GRM: Gross rent multiplier. This is a number multiplied by the gross rents to get the purchase price. The lower the GRM the better.
Debt Coverage Ratio: Net Income devided by mortgage payments (that is the easy way to say it). The higher the better. A 1 to 1 ratio means you make no money but lose nothing. A 1.2 to 1 ratio means you are making a 20% increase above the mortgage payment.
Value Add: This is doing something to increase the value of the property. This can include lower vacancy, do repairs or even charge more rent.
Profit and Loss: This is usually the statements that show all the incomes and losses of a property for the last several years.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
I'm not too familiar with commercial properties but aren't most of the terms you defined are assuming that the business is up and running?
If it's a foreclosed commercial property then aren't some of those numbers moot since chances are there's no business currently up and running in/on the property?
TIA for shedding some light on my thoughts.
Mark K.
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Wow! Seems more complicated that what I thought. Its been difficult finding information online. I would like to pursue this route as here in Nevada it appears to be increasing in interest. I guess the higher the profit the more challenging and riskier things get. Thanks so much for this information and I will seek to learn more and more. One good deal could possibly allow me to do RE full time. That would be my dream!!! Thanks!
Esmirna Maloon
Hello Emaloon,
I have been studying up on buying commercial properties. I bought a whole course on this subject because I prefer working these types of deals as opposed to buying a lot of residential properties. Also I hear the returns are bigger. It's my understanding when buying commercial properties they don't look at your personal credit mainly the income of the property plays the greatest factor in the commercial game. If you would like to learn more or partner up please pm me and we can get the show on the road.
Tricia
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