6 Ways to Spot a Hot Commercial Real Estate Deal

Good commercial real estate agents have this seemingly magic ability to find good deals. Whenever a decent property goes on the market, you already have top-rated agents all over it. So, what makes them able to spot these good deals so quickly? Is it a gift from God, or do they use some kind of real-life cheat code? Of course, it’s neither. Being able to spot a hot commercial real estate deal is something you can learn and develop. All you need is time and drive.

How to spot a hot commercial real estate deal

The first thing to understand about spotting good commercial real estate deals is that there is no one way to do so. Realtors use different methods based on their preferences and current market state. Therefore, if you wish to succeed in commercial real estate, you need to understand which methods you can use and how to use them effectively. In this article, we will explore six ways to increase your chances of finding a good deal relatively quickly.

Neighborhood “farming”

If you are new to the local area, neighborhood farming can be a terrific way to spot a hot commercial real estate deal. Namely, what you do is approach the real estate market from the aspect of a buyer. You go to open houses, explore online listings and talk to owners. Your goal is to learn as much as possible about commercial investment sectors and local market trends. The more you learn about them, the easier it will be to spot a good deal when it pops up. And once you get the full picture, you’ll be able to make educated predictions on when a certain property might go on the market. This will enable you to be one step ahead in front of your competition.

The more you know about a neighborhood, the easier it will be to spot good deals in it.

Map out a plan of action

Figuring out whether a commercial real estate deal is good is rarely easy. There are tons of parameters you need to take into account, from mortgage rates to tenant preference. Unfortunately, when you deal with commercial real estate, you rarely have plenty of time to make your decisions. Real estate properties go fast, especially if they are lucrative. So, if you wish to find and get good deals, you need to have a ready action plan.

A good plan of action helps you stay focused and motivated. This is why all real estate agents advise creating one and why even Archstone Behavioral Health recommends addiction recoverers create it. You need to be able to analyze situations to make the right calls quickly. So, before you start looking, make sure you have a ready plan of action to rely upon.

Learn what constitutes a good deal

Over time, all good realtors develop an eye for good deals. It doesn’t take much more than a look for an experienced realtor to know whether a deal is worthwhile or not. But, until you develop this ability, there are a couple of general rules you can follow. First, a good deal is one you can walk away from. A good commercial real estate deal is one where you can develop an exit strategy.

Be very careful if you spot a hot commercial real estate deal you can’t opt out of.

Second, always look for damages. The more properties you fix, the easier it will become to spot potential trouble. But, it is paramount that you educate yourself as much as possible. By being able to learn from other people’s experiences, you will have a much easier time spotting potential flaws in properties.

Thirdly, always carry a meter and a calculator. Your decisions should always be based on objective metrics. And the more metrics you get on the spot, the easier it will be to rely upon them.

Understand key commercial real estate metrics

While there are numerous metrics, these are the ones we feel are the most important:

• NOI (Net Operating Income) – You calculate NOI by evaluating the first year gross operating income and then subtracting the operating expenses.
• Cap Rate – You use this to outline the value of an income-producing property. By doing so, you estimate the net present value of future profits.
• Cash on Cash – Cash on Cash is an investment formula used to determine the first-year performance of competing properties. To calculate Cash on Cash, you simply divide the Annual Before-tax Cash Flow with Invested Equity.

Knowing these not only makes it easier to evaluate potential properties but also allows you to research market trends.

Become seller oriented

Another way to spot a hot commercial real estate deal is to become seller oriented. What this means is that you put the market aspects aside and focus on the human element. By finding motivated sellers, you will have a much easier time closing deals and making them lucrative. Your job is to learn what makes sellers tick and what makes them convinced that selling is the right call. Ideally, you will find motivated sellers that wish to sell below the market value. But, even if you don’t, you will learn a lot about dealing with people simply by focusing your attention on them. At the end of the day, the job of a real estate agent does require a fair bit of people skills.

You need to know how to deal with people if you want to tackle real estate.

Learn from competition

The final way to increase the odds of finding good commercial real estate is to learn from the competition. The best way to avoid mistakes is so is to try and follow what they do and not focus much on what they say. Successful real estate agents are rarely willing to outline what makes them successful. And even if they are, they likely won’t know how to put their success into words. So, instead of reading books about how to be a successful realtor, try to monitor their behavior. See what business decisions they make and try to reverse engineer their thinking process. Before long, you will be able to outline what gives them the ability to spot a hot commercial real estate deal.

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