The benefits of investing in commercial properties are something that will trigger a conversation with a real estate professional that could last quite some time. The biggest takeaway from this conversation will be that commercial real estate is a much better investment than in residential real estate. The reasons cited for investing in commercial real estate being a much more lucrative investment include the additional cash flow, beneficial economies of scale, a much more level playing field, and the bigger payoffs that most commercial real estate properties provide over a traditional residential real estate investment.

The questions that many still relate to: How do you value each specific property? How do you know what properties are a great deal and which ones you should pass on?

The entire path to success starts with a successful blueprint. The following is the outline of a blueprint to begin to help you evaluate which properties are a great deal in commercial real estate versus which ones you should avoid:

Take the Time to Learn What the Insiders Already Know

If you want to be a serious contender in the commercial real estate market, you need to think like a professional. This includes understanding how properties are valued and how commercial properties are valued differently from residential properties. One must understand that commercial real estate is valued by the number of usable square feet in the building. The more usable square feet of floor space in the building, the more that the owners of commercial real estate buildings can charge businesses or clients that are renting the space. The more you charge the more revenue you can generate from the building you have purchased. Moreover, keep in mind that commercial property lenders want to see at least 30% cash down before they give the loan to buy the building their OK.

Map Out Your Action Plan

You will need to have an action plan when you go into purchasing real estate. Understanding your personal parameters when you are setting up a deal is vital. You need to know how much you can afford to pay and draw the “red line” when you are not able to afford the property, no matter how good of a deal you may be passing up. Use tools such as mortgage calculators to determine what you can afford versus what you need to pass on.

Learn to Recognize a Good Deal

When you are looking to invest your money, you will need to determine where the best deals are lying. When viewing potential buildings to purchase consider things like how much damage is done to the property and how much money you will need to sink into it to get it into working order. Make sure the building also meets your ability to afford it financially as well.

Understand Key Metrics of the Real Estate Industry

When you are going into the business you will need to understand the key metrics of the industry and how they impact your ability to find a great deal when it comes to the property you want to buy. Understanding vital terms like net operating income (NOI), cap rates, and cash-on-cash will help you navigate the business with more ease.

Look for Sellers Who Are Motivated to Move Property

When you are looking for a good deal, finding a motivated seller is a great place to start. Motivated sellers are more likely to interact with the prospective buyer and are much more likely to be willing to offer a great deal to help get the property off their hands. This can save you money as a buyer. Be aware of where the motivated sellers are and take advantage of their motivation to make a good deal that saves you money.

Discover How To “Farm” For Neighborhoods

When looking for commercial properties to investigate in getting to know the neighborhood a bit first. Talk to the locals that live there and they will be able to shed light on what the area is like. This gives you a clue as to what you are buying before you take the final “jump” into purchasing something.

Use the “Three-Pronged” Approach to Real Estate Property Evaluations

If you are out searching for the best deals you will likely have to be adaptable. Using anything from classified ads to hiring real estate bird dogs for a referral fee can help you find the best deals in the area.

The Bottom Line

In conclusion, all the property farming and negotiating in the world can’t get you the best deals.

What will work the best? Simple human communication. Build relationships and rapport with property owners. This makes them more comfortable offering you a great deal so you can do business and get the best deal possible.