How to Find Commercial Real Estate Deals: 10 Tips for Investors
At First National Realty Partners, we have a saying that we look at 100 deals and choose one. This means that we have incredibly strict purchase criteria and only choose the deals with the best risk/return profile. While we have found great success with this model, it is also highly reliant upon significant and consistent deal flow.
In this article, we are going to describe ten tips that we use to find the best commercial real estate deals. For each one, we will describe what it is, how it works, and why it can be beneficial. While we use these for our own account, they are also applicable to individual investors who want to uncover deals for their own portfolio.
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Why Deal Flow Is Important
Before highlighting the tips to find new deals, it is worth discussing why deal flow is so important.
For individual and institutional investors alike, new real estate investment opportunities are the lifeblood of a business looking to scale and grow – the more deals that an investor can look at, the greater the chance they will find one that meets their investment objectives.
To this end, a steady flow of CRE deals is critical to investors looking to maximize their chances for a positive return. But, it isn’t easy to keep a steady flow of real estate deals coming – it takes a near constant effort to keep the pipeline full. The following sections describe ten tips for doing just this.
Tip #1: Learn How To Recognize Value
We also have another saying at FNRP that investors “make their money on the buy” – meaning that the purchase price paid for a property has a major impact on the ultimate return it produces. So, to support this idea, it is important that investors learn how to recognize value so they can pay a reasonable purchase price.
“Recognizing value” means being able to spot key features or characteristics of a property that will make it valuable for potential buyers or tenants. For example, the location, build quality, tenant base, market growth, or major employers are all major factors that go into making an investment property valuable. To an inexperienced real estate investor, these qualities might not be obvious so it takes many deal repetitions to understand where value lies in a commercial property and how to bring it out for the benefit of owners and investors.
Tip #2: Find Motivated Sellers
Every seller has a different reason for wanting to sell their property. For some, they may need to sell because their planned investment holding period is up and they need to sell the property to return capital to their investors. Others may have a personal reason like a family member who passed away or a need to pay for college.
The best commercial real estate investors work hard to find motivated sellers and then dig a bit deeper to find out exactly what their motivation is. They can use this knowledge to craft their offer so that both parties can walk away from the deal happy.
Tip #3: Find The Right Broker
For all of the information about commercial real estate properties that is available for free on the internet, the vast majority of them still trade hands through a commercial real estate broker or agent. Often, brokers have access to off market deals or can give investors a preview of their listings before they hit the market. In addition, they can provide valuable advice and guidance on the local real estate market conditions and may even work to help lease space.
Finding the right commercial real estate broker or brokerage firm can be tricky, but it can be helpful to review the listings for a single market to see who is the most active or to network with other investors and ask for a recommendation. For investors looking to scale, they should actively work to find multiple brokers with different specialties or in different markets to maximize deal flow.
Tip #4: Use Online Sources
While brokers are important, they are not the only place to find deals. Often, the best place to start is by using online search tools to filter through listings in specific markets or for specific property types. For example, if a real estate investment strategy is to look for office buildings or apartment buildings only, online tools like Loopnet or CreXi can help identify all of the listed properties for sale in a given market.
With each listing, there will be a broker identified as the individual(s) handling the sale and calling them can set the investment process in motion. To generate deal flow, real estate investors should be looking at these sites on a daily basis to stay on top of all new listings.
Tip #5: Network with Property Owners
Of course property owners are the ones who make the decision to sell so it is always a good idea to get to know them in an environment that is conducive to having a discussion about selling. So, go meet property owners at conferences, neighborhood associations, the chamber of commerce, private social clubs, on the golf course or whatever place they may frequent.
It isn’t necessary to give them the hard sell immediately. Instead, it may be more beneficial to get to know them personally and to inform them that you have the resources and desire to purchase a type of property like the one they own. It may take a week, a month, or a year, but when they choose to sell, you want to be the first person they call.
Tip #6: Use Social Media Platforms
When trying to buy commercial real estate, social media can be useful for two reasons.
First, it can be helpful to connect with brokers, property owners, lenders, and anyone else who might be able to help generate commercial building deal flow. If these online connections can be converted to a real life meeting, they can prove to be incredibly beneficial.
Second, they can be helpful to reach a lot of people at once, quickly, and cheaply. Perhaps it makes sense to post in a forum for a particular neighborhood or market to let readers know what type of property you are looking for. Or, an even more aggressive investor could run ads targeted to a specific group or market segment to inform them that you are a buyer of a certain type of property.
But, it is important to note that this is just a way to generate leads. The hope is to end up with a bunch of emails, but it is still up to the investor to follow up on them and pursue the deals that they deem to be most worthwhile.
Tip #7: Drive The Market
When buying commercial real estate, not all properties for sale have a sign. For this reason, it is always a good idea to drive the local commercial real estate market and to make note of the rental properties that look potentially interesting.
By noting the address and location of interesting properties, investors can go back to the property records of the local city/county and perform due diligence to determine who owns the property and how to reach them. With this information, the most proactive investors will send letters or emails seeking to learn more about the property and to see if they may potentially be interested in selling.
This is a way to proactively generate your own deal flow.
Tip #8: Cold Call Owners
Similar to driving the market, cold calling owners can be a great way to proactively generate your own deal flow. Except in this case, instead of sending letters or emails, potential real estate investors can track down the contact information for the owners of properties that are interested in and call them directly to inquire about a sale/purchase.
Investors should be cautioned that this approach can have a low percentage return with many owners not returning calls or even hanging up. But, it only takes one or two leads to make this strategy worthwhile.
Tip #9: Network With Commercial Real estate Vendors
It isn’t just other investors that you should network with. Commercial real estate vendors like realtors, property managers, accountants, landscapers, or maintenance staff can be a great way to get an inside track on which properties are being prepped for sale or which ones have owners who want to sell.
The major benefit of this approach is that it may be possible to learn about the properties before they hit the open market so there may not be any competitors to negotiate against.
Tip #10: Invest Through Private Equity Real Estate
From the previous nine tips, it can be seen that it takes a lot of work to generate a material amount of commercial real estate investment deal flow. It takes consistent effort over a long period of time to become proficient at it and it takes a demonstrated ability to close to build trust the deal referral sources.
For this reason alone, it can be very difficult and time consuming for individual investors to generate the same type of deal flow that institutional firms (like ours) do. So, instead of spending all the time and energy needed in a DIY approach, individual investors can just invest alongside private equity firms.
In this scenario, individuals can spend much less time looking for their own deals and redirect that effort to finding a private equity firm to work with. Once found, the firm does all of the hard work of generating deal flow and analyzing potential opportunities on behalf of their investors. In addition, they manage the property once purchased, which provides a truly passive source of cash flow for individuals, which can be very beneficial.
Summary of Finding Commercial Real Estate Deals
Deal flow is the lifeblood of any commercial or residential real estate investment effort. The more deals an investor can look at, the greater the chance they have of finding one that is going to end up being good.
But, it can take a significant amount of time, resources, and effort to generate a consistent stream of deal opportunities – they don’t just appear. For this reason, individuals looking to grow or scale their investment business must proactively seek out deals on their own.
Methods for finding deals include working with one or more brokers, driving the local market, cold calling property owners, and networking with real estate vendors who may have inside knowledge of the happenings at a property.
For individuals that do not have the time, energy, or resources to invest in generating their own deal flow, they may find that partnering with a private equity firm can eliminate much of this headache. In a typical scenario, the private equity firm does all of the hard work of generating deal flow and managing the property while investors collect passive income.
Interested in Learning More?
First National Realty Partners is one of the country’s leading private equity commercial real estate investment firms. With an intentional focus on finding world-class, multi-tenanted assets well below intrinsic value, we seek to create superior long-term, risk-adjusted returns for our investors while creating strong economic assets for the communities we invest in.
If you are an Accredited Real Estate Investor and want to learn more about our investment opportunities, contact us at (800) 605-4966 or info@fnrpusa.com for more information.
