Interest in property for investment has been growing by leaps and bounds. If you’re willing to take the risks associated with owning commercial property and want a higher yield than banks are offering, it might be time to become a landlord.
“Today, people are looking for yield,” says Bob Brehmer, principal, NAI Daus. “They are getting point-nothing at the bank.
“And when you balance your risk with reality by picking a team to help you, it’ll be a more successful investment.”
Smart Business spoke with Brehmer on how to best enlist the help of professionals to guide a commercial property investment purchase.
Whose help should you seek when purchasing commercial property?
There are four key figures: a mortgage broker, a real estate broker, a property inspector and a real estate lawyer who understands investment real estate. Those key people on your team will help ensure a successful outcome.
What is the role of the mortgage broker? If you are just arranging traditional bank financing, you already may have the banking relationships you need to secure loans. But people who don’t have their own CFO probably don’t have exposure to this type of financing.
A mortgage broker can be very helpful. The broker can help you develop the investment model for you to follow.
If you use a mortgage broker who helps you underwrite the financing, the broker can access different types of lenders from all over the country and, in effect, act as your conscience. Like any other professional, your mortgage broker should be concerned about your well-being.
A broker doesn’t cost much money, and it’s really important, especially for a less experienced, less savvy investor.
The mortgage broker can determine where the rents and mortgages are today: What do we need to meet the mortgage and have a reserve? Is the rest of it available for other investment or distribution?
What about a real estate broker?
An experienced investment real estate broker or salesperson can help you identify market rents and expenses, whether or not a property is functionally obsolete. A three-story walk-up with no elevators is not going to be a very well leased building. It will need modern, efficient elevators, fire sprinkler systems and other important items.
Does it have a good roof and adequate parking? Those are the top concerns of tenants, along with location. If there is a great bargain on a building in a tertiary location where there’s no market for space, it’s not a bargain because of the location.
What about the role of the inspector?
It is important to have a trained third party who can inspect the premises. The inspector can assess that there are a few years left on the roof, for instance, or if the air conditioner is of the age that it’s inefficient and outdated, so replace it.
You want the inspector to review the building envelope and the mechanical systems to make sure they meet the building code. What could happen to you is that after you buy a building you discover you have to spend some $60,000 to update the elevators.
The inspector is going to evaluate the parking lot condition and look at your electrical panels to make sure there is enough power for the building. You may be making a multimillion dollar investment, so to spend a few thousand dollars on a property inspection is well worth the money. In addition, you have a record of what’s in your building. When you go to sell it, it is good documentation to have.
What are the real estate lawyer’s duties?
I would advise getting a real estate attorney when you are drafting the purchase agreement. You want somebody who understands investment property because you are going to have a mortgage and other legal documents. You are going to want somebody to read that and understand all the documents.
This is all about mitigating your risk. The more you prepare upfront, the better it is going to be. Why wouldn’t you avail yourself of the people who can help you get there?
Insights Real Estate is brought to you by NAI Daus