Posted by Penny on August 08, 2007 at 10:09:34:
Go to the commercial area and read the articles by Ray Alcorn - lots of good info there. He just added an excellent article on the 5 mistakes made by investors new to commercial.
If you are serious about commercial investing, Ray’s book, Dealmaker’s Guide to Commercial Real Estate Investing, is well worth the cost and is a great reference. I have a copy and can highly recommend it.
In addition to other contingencies, such as financing and environmental, commercial contracts should have a due diligence contingency clause that allows you more fully investigate the property, provide an opportunity to renegotiate terms based on discrepancies, or provide an out if you find a dealbreaker situation. What you ask for during due diligence and other contingencies depends on the deal.
While you don’t want to spend too much time on a property you don’t have under contract, you should know the local market where you are buying. Why has this property been on the market so long? A great deal in a declining area (if this is the case) can be a recipe for disaster. That’s not to say it couldn’t be successful, but there will be factors working against you. Redevelopment can be an opportunity or it can be a lost cause.
It is really important to have a plan for this deal, particularly with a redevelopment project. What do you intend to do with this property (keep, sell, etc.), what is the time frame, does your plan require zoning changes, what are you backup plans if some what-ifs occur, how does this plan satisfy a local market need, what is your projected profit (you make your money on the buy), what are your exit strategies, etc.
Bottom line - your numbers need to make sense and you need to factor in the carrying costs during redevelopment. I determine a target goal, an acceptable underachievement projection (things go wrong) and an overachievement projection(things go great) when looking at projects.
Hope this helps.