Q: What’s your thought on retail condos for sale in San Jose, CA?

A: There are a couple retail condo projects in San Jose. The price is about $600-700/SF. The upside is they are in good location where there is a shortage of retail spaces. Retail condos are also available in Florida. The developer targets small business owners who wish to own their own unit. This is a good marketing strategy and market niche to get top price for a retail property. However, there are some drawbacks:

1. Most likely you will have problems financing your purchase because the unit is vacant initially. So you need to purchase in all cash. Even for owner-occupied units, the SBA financing is not favorably low, e.g. 7.5-8% interest as the loan amount is relatively small.

2. With tenant improvement credit to tenant and leasing fee, the cost is close to $700/SF. To get 6% cap, you will need to lease it at $3.50/SF plus NNN. This is on the high side of fair market rent for retail space. So you experience high turn over rate.

3. To maximize profits, the developer tends to provide a minimum number of parking spaces, e.g. 4/1000 SF. The parking spaces tend to be 6.5’ wide for compact cars. As a result, the center may not attract affluent customers driving big expensive cars like Benz or Lexus.

4. In a retail condo project, you don’t have control about other tenants’ businesses. If your tenant has a good business, others can open the same business next door to compete & take your tenant out of business. So you may see 2 nail salons, 4 real estate offices, and 3 cellular phone tenants in a 20 unit retail condo complex. Besides, if other units around your unit have businesses that need a lot of parking spaces like restaurants, you may have problem leasing your unit. Your tenants could also lose business because the customers cannot find parking spaces.

Have a question about commercial real estate investment? Email to davidvtran@yahoo.com.

David V. Tran is the CEO of eFunding Inc., a commercial real estate brokerage, commercial loan broker, property management, self-directed IRA investment, TIC & syndication company in San Jose, CA. His website is www.efundingcom.com. He may be contacted at (408) 288-5500. eFunding does business in all 50 states. He is selected as Pensco Trust’s (a major self-directed IRA custodian) Preferred Professional and is the #1 commercial real estate expert author on ezinearticles.com. David currently offers 3 FREE real estate investment seminars till 12/07:

1. How to invest in commercial real estate for retirement income NOW.
2. How to maximize cash flow with 1031 tax-deferred exchange.
3. TIC/Syndication: strategy for small investors and self-directed IRA investors to acquire high-valued properties.

   You are welcome to share this report, unedited and in its entirety, with anyone you like. You may not remove this text. © 2007 eFunding, Inc

   
   
   Posted In: Commercial-Property, Real-Estate

Last week I discussed the financing of the purchase of a residential lot for development with a woman who, with her husband, wanted to build a custom home. As always happens when discussing financing, the conversation turned to interest rates and loan structures. When I described the going rate for a fully indexed land loan on a residential lot, she darn nearly fainted!

She spluttered: “Wha … How could rates possibly be so high?!? My home loan is at 6% and you are telling me that a lender wants over 10% for a land loan? That is ridiculous!”

Well, not really.

I understood her confusion, but she was comparing apples to oranges. From an investor’s standpoint, land is a great investment for a number of reasons: “They” are not making any more of it (except possibly in Dubai), you can put your hands on it (it is “real”), no one can pick it up and take it away without a mounting a stupendous effort, and eventually it will be worth more than you paid for it (in most cases). However, when we look at land from a lender’s perspective, it is leaves a lot to be desired.

When making a loan, the lender’s primary objective is to get paid all of its interest and principal. The lender relies on the borrower to fulfill his obligations under the note, but asks for some “insurance.” That insurance comes in the form of a lien on a real property, called “securing” the loan, and is the lender’s last resort in the event the borrower can’t pay off his loan. The loan is made to the borrower, not the property. It is secured by the property in the event the borrower defaults on the loan. So a lender looks for the best security that it can find to ensure that it will be paid back.

Commercial real estate makes great security for a lender because it produces income that can make the loan payments until the property is sold, in the event the borrower defaults. Homes are also great security because there is usually an active market in which to sell one and a borrower is likely to do everything he can to keep his primary residence. Even owner-occupied business property is a good bet for a combination of the reasons above.

Not so, land.

Land, for all of its potential value, just sits there. No one lives on it, no one works on it, tumbleweeds roll across it, and unless it is used as a parking lot or a swap meet, it produces no income. Add to these challenges the reality that the process for converting land into income producing or residential property takes a great deal of effort, specialized knowledge, and time. Most lenders really do not like these characteristics in their security and thus, don’t lend on land.

As a result, when faced with taking land as security for a note, those lenders who do make loans on land do a couple of things to mitigate their risk. The first is that they usually reduce the loan to value significantly. The more equity you have in the land, the bigger the discount they can offer to a buyer when selling it and the safer they feel in making the loan. Note that this was not the case in my opening example. That particular lender had a specialized program that would have loaned up to 90% of the value of a finished lot, but it was for residential, owner-occupied development.

The second thing a lender does is increase its rate of return to match the perceived risk of disposing of the property in the event of a default. If a lender gets 12% to 14% on its money for a land loan, it receives its invested dollars faster, even though we call them “interest.” This reduces the lender’s exposure faster and provides a risk-adjusted return when the loan is paid off.

So the next time you contemplate financing some land, just remember that your lender will be looking at it from a vastly different set of circumstances than you. Done that way, you probably won’t cough loudly when he quotes you the rate!

WANT TO USE THIS ARTICLE IN YOUR E-ZINE OR WEB SITE? You can, as long as you include this complete statement with it: ‘ “The Investment Property Insider” is published by Craig S. Higdon, a veteran commercial mortgage broker. He publishes the weekly e-zine and blog, http://www.InvestmentPropertyInsider.com, for commercial real estate investors, developers, and industry professionals. Visit the blog and get this free report: “The 7 Biggest Loan Mistakes Real Estate Investors Make And How To Avoid Them.” ’

You have been investing in residential properties for some time now and you feel like you can make the jump to investing in commercial real estate. This could be true, but keep in mind that investing in commercial real estate is far more risky and more expensive than investing in the residential real estate that you are used to. Because it is riskier, it normally can make you more profit. There are positives and negatives to investing in commercial real estate.

In general, the profit attained from commercial real estate can be traced back to the overall economy. As things look up in the business world, the value of commercial real estate tends to be on the rise. Commercial real estate has increased in volume approximately 20% over the last few years, making it easier for small investors to profit from this niche of the real estate market.

Of course, the value of all commercial real estate is not solely dependent on the overall economy of the country, it is more dependent on the economy of your region, town, or even neighborhood. If your property is located in an area that has seen little growth in recent years, you are not likely to make a decent profit.

During a recession, commercial foreclosures and vacancies tend to be more likely than residential foreclosures. In the case of a vacancy during a recession, the property owner may be forced to sell the property for less than the value in order to keep themselves afloat. These factors contribute to the risk of commercial real estate investment. However, during a boom in the economy, there are many people that want to try their hand at their own business or expand their current business, which opens the door for more tenants for commercial real estate.

One way to invest in commercial real estate without going out and purchasing a property is through something called a REIT (Real Estate Investment Trust). These are traded securities that allow the smaller investor to become a part of a large scale commercial project. Most REITs specialize in certain types of properties such as office buildings or hospitals, which add to their stability. There are several benefits to REITs Ð they are traded like stocks, so you can buy and sell them as you wish; the share price will increase in value as the property value increases; shareholders, in many cases, get a share of the rents generated from the property.

REITs have become very popular in the last few years because they are generally a positive investment. REITs are required by law to distribute 90% of their profits as dividends. These dividends are paid to the share holders. REITs also hold some tax benefits that will save you money on April 15.

There are several methods of investing in commercial real estate, and we have just touched on a few. Like anything else, investing in commercial real estate is not for everyone, but with a little knowledge of the situation and good problem solving skills, this type of investment could be the boost that your finances need to get you where you want to be.

http://www.RealEstateInfoLive.com brings you real information on how to easily understand real estate, and how to afford to buy real estate. There’s nothing to buy, so be sure to check out our real estate appraisal training pages.

In most if not all commercial property listings, you always see their cap rates listed. Investors often use cap rate as one of the main selection criteria for a property as it indicates the investment return. However, the cap rate alone does not tell you the whole story about investment return.

Let’s look at 2 properties: property #1 has 8% cap and property #2 with 7.25% cap:

1. The first property is purchased for $3M. The lender provides a $2.1M loan (70% LTV) at 7.25% interest.

2. The second property is also purchased for $3M. The lender provides a $2.1 loan (70% LTV) at 6.25% interest

…………………………………Property #1 ($3M, 8% cap)……Property #2 ($3M, 7.25% cap)
Net Operating Income …….$240,000…………………………..$217,500
Loan amount…………………$2,100,000…………………………$2,100,000
Down payment………………$900,000……………………………$900,000
Loan interest…………………7.25%……………………………….6.25%
Annual Interest payment…$152,250……………………………$131,250
Income before tax…………$87,750……………………………..$86,250
Investment equity return…9.75%………………………………..9.58%
Appreciation rate……………1% per year……………………….3% per year
Appreciation value………….$30,000……………………………..$90,000
Total return…………………..13.08%……………………………..19.58%

While property #1 offers higher cap rate than property #2, the return of equity for property #2 is almost the same as property #1. This is due lower interest rate of 6.25%. Why does property #2 get lower interest rate? There are many factors that determine the interest rate:

• Loan amount: In residential mortgage if you borrow less money, i.e. a conforming loan, your interest rate will be the lowest. When you borrow more money, i.e. a jumbo or super jumbo loan, your rate will be higher. In commercial mortgage, the reverse is true! If you borrow $200K loan your rate could be 9%. But if you borrow $3M, your rate could be only 5.9%! In a sense, it’s like getting lower price when you buy an item in large volume at Costco.

• Property type: the interest rate for a single tenant night club building will be higher than multi-tenant retail strip because the risk is higher. When the night club building is foreclosed, it’s much harder to sell or rent it compared to the multi-tenant retail strip. The rate for apartment is lower than shopping strip. To the lender, everyone needs a roof over their head no matter what so the rate is lower for apartment.

• Age of the property: loan for newer property will have lower rate than dilapidated one. To the lender the risk factor for older properties is higher so the rate is higher.

• Area: if the property is located in a growing area like Atlanta metro the rate would be lower than a similar property located in the rural declining area of Arkansas. This is another reason you should study demographic data of the area before you invest in the property.

• Tenant: single-tenant property with a brand name/national tenant, e.g. Walgreens will get a lower interest than local tenant.

• Location: the retail center next to Walmart will probably get a lower rate than a retail center shadow anchored by a local furniture store.

• Your credit history: similarly to residential loan, if you have good credit history, your rate is lower.

• The lenders you apply the loan with. Each lender has its own rates. There could be significant difference, e.g. over 1%, in the interest rate for the same property. If you apply for a commercial loan yourself, chances are you will pay a higher rate because you apply for the loan at the “wrong” lender. Commercial loans are very different from residential loans. So you should work with someone specialized on commercial loans to shop for the lowest rates.

• Prepayment flexibility: If you want to have the flexibility to prepay the loan then you will have to pay higher rate. If you agree to keep the loan for the term of the loan, e.g. conduit loan, then the rate could be 1% lower.

• Soil Contamination Risks: Loan for a shopping center with a gas station will probably has higher interest rate as the gas station has a high risk of oil leak which could contaminate the soil.

Commercial properties also appreciate at different rates. When appreciation is factored into the return, even at a conservative 3% rate, property #2 has almost 50% higher return than property #1, 19.58% vs. 13.08%. The following are some of the factors that may influence the appreciation of a property:

• Demographics: in a growing area where more people are moving in than moving out then the appreciation is likely to be high. The more affluent area is likely to have higher appreciation than a low-income area.
• Age: 40 year-old property is likely to appreciate slower than 3 year old center.
• Rent: if the current rent is $1.25/SF while the market rent is $2/SF, the property has upside potential when the lease is renewed. If the property has strong annual rent increase, e.g. 3-4%, the net income will be higher next year. Higher income will result to higher property value.
• Location: a property at a good location, e.g. just off freeway exit, is likely to get a better appreciation.
• Demand and supply: in a market where there are more buyers than sellers the appreciation should be higher.
• Inflation: construction materials cost more every year due to inflation and strong demand in developing countries. For example cement, lumber, steel and copper cost more now due to strong demand from China. Labor costs also increase due to inflation. Fees for various construction permits also increase for various economic and political reasons. As a result, construction expenses go up.

So it’s important to work with a experienced broker who does business in various states and can provide you a big picture of the market.

Conclusion: You should evaluate the return of investment based on:

1. Cap rate the property offers,
2. Interest rate that you will pay, and
3. Potential appreciation the property generates.
   

It’s not a bad idea to have a broker with knowledge & experience about both commercial real estate and loan to represent you. Otherwise, you may end up screen out the very best properties.

David V. Tran is the CEO eFunding Inc., a commercial real estate brokerage, commercial loan broker, property management, self-directed IRA investment, TIC & syndication company in San Jose, CA. His website is www.efundingcom.com. He may be contacted at (408) 288-5500. eFunding does business in all 50 states. He is selected as Pensco Trust’s (a major self-directed IRA custodian) Preferred Professional and is the #1 commercial real estate expert author on ezinearticles.com. David is well-known for his 3 FREE real estate investment seminars:

1. How to invest in commercial real estate for retirement income NOW.
2. How to maximize cash flow with 1031 tax-deferred exchange.
3. TIC/Syndication: strategy for small investors and self-directed IRA investors to acquire high-valued properties.

   You are welcome to share this report, unedited and in its entirety, with anyone you like. You may not remove this text. © 2007 eFunding, Inc.

   
   
   Posted In: Commercial-Property, Real-Estate

Commercial real estate investing can be a scary and daunting task, and in most cases you need a lot of money to get started. However if you can get the financing in place and the property fits your situation, you can regain that money fairly quickly. Multi Unit investments are probably the best properties to purchase if you are a real estate investor.

Here are some buyer tips for purchasing multi unit housing.

1) It is very important to way all of your options. Although it may seem ideal to purchase a property that is in your area, consider this: There are many multi unit properties all over the country, it is very likely you can find one that fits within your budget that may generate similar revenue.

2) Multi unit properties may not be the best investment option for each person. Consider both the pros and cons before making a decision. It is always good to know if personally you are prepared to handle the situations that may arise.

3) Always consider prior to buying each piece of real estate on how you are going to make money from it. Are the units going to be rented to tenants? Are you going to fix up the property and Flip it? It is important to know prior to purchasing so you can get a better idea of the costs, revenues and profits associated to each property.

4) Always make sure that the property you consider can turn a profit. There is no sense buying a multi housing unit if you are not going to get any tenants. Make sure you do some research on the area you want to buy in. Find out what the tenancy rate is in the area prior to purchase.

5) If you want the transition to be a bit smoother and have decided to rent the units, it might be easier to find a piece of real estate that already has tenants occupying the units. You will take over the building knowing that you will be getting revenue right off the bat. You will also avoid the daunting task of finding qualified tenants.

Hopefully these tips will help when looking at buying multi unit properties.

Dan Standeven is an Author and seasoned Real Estate enthusiast who provides Free Real Estate Articles including articles such as
Commercial Investing Tips provided through his website at http://www.realestateeditorial.com

The Indian real estate market is growing at a whopping pace and has outrun the global real estate market growth. This has made major real estate investors to make a u-turn in their plans and turn towards India. You never know, what most of the global investors are doing at this moment, they might be in their discussion rooms, thinking and planning for their major investment in India and thinking where to land in India.

Should we go to Bangalore, the silicon valley of India, what about the over-burdened infrastructure there, what about the government there, what about the language and culture there? Similar questions loom above everyone in a thick black cloud. The answer is to get in anywhere and get in as soon as possible.

Most of the investment is around Delhi and Mumbai, however in the south, the growing demand is out performing the supply, and this appears to be a never ending opportunity for a true real estate businessman. One can say it’s a bubble and will burst soon, but looking at the growth in the economy and the projections of major companies, it is very unlikely for a bubble to even exist at this moment. I would say, there is still a very big market and we have not seen the monstrous growth of the market yet. Hence, I would say there is no risk in venturing into the Indian real estate market for businessmen.

For the businessmen, there is a big opportunity in advertising online via India’s fastest growing website RealEstate4India.com. This website was launched by internet market leader Sam’s group of companies, who also own other leading websites such as carsalesindia.com and bikesalesindia.com. In a recent statement they said that they have a good reach among NRI’s and have reported over 200% growth in their automobile market.

Moving on to the next topic, what about the individuals and the opportunity for the market as an investment? Well, that is still an opportunity, and I would surely mention that one should seriously think and put all efforts to get into this market and capitalize on the market. At the same time an advice for Individuals would be to diversify investments, although other investments like mutual funds and fixed deposits are less attractive, it is always recommended to diversify your investments to a wide extent, which will prove as safe. A tip would be to diversify your funds to the extent that you can manage.

Individuals can also register for free and advertise properties for free in RealEstate4India.com! Buyers can view sellers contact details and contact sellers directly.

The author is one of the top enterpreneurs in India, with his companies growing at over 200% per annum. His views on the Indian real estate market are invaluable.

Executive suites is a generic name for a type of rental office available in cities all over the U.S. and overseas. They are also called ‘shared office space’ or ‘temporary office space’, but don’t let these terms throw you. Executive suites are not expensive CEO type of corporate offices. Nor does ‘shared office space’ mean you have to share an office with another business.

Also, the name ‘temporary office space’ doesn’t have to mean temporary. They can actually be as permanent as you like. Rental plans are so flexible you can arrange their use for a day, week, month or how everlong you want.

But the best part is the look of success you get without the expense. For example, you don’t have to buy a stick of furniture. It’s all there waiting for you when you walk into your executive suite. Also, there is no need to hire extra staff. A professional receptionist will be available to greet your visitors and answer your telephone when you are out of the office.

From the viewpoint of a prospective customer, you will have the look of an established and successful business, rather than a rickety, run of the mill office of a struggling start-up. It is possible that a boring, cluttered, or sterile office space lacking in style and the modern touches of a professional designer may cause top-notch potential clients to rethink doing business with you altogether. Remember, first impressions really do mean a lot when attracting new business.

Please note that when it comes to building a professional company image, the office space you select is paramount. After all, you are really sending an intangible type of message which one that should represent a thriving and successful business in the mind of your prospective client. The image you project begins the moment your clients walk into your building the first time.

Executive Suites: The good news is …..

Executive suites are often located in buildings with a Class A rating. Once again, your professional image is further reinforced when your clients are greeted in the lobby by a friendly receptionist, just like in those large corporations. All in all, everything works together seamlessly to build the type image of you desire.

To find an executive office space in your preferred city, you can do a simple key word search on “executive office space” and include the city or zipcode. You will be pleasantly surprised at the many options provided by in your area.

Cheree Dohmann, an internet marketing consultant, works with Premier Business Centers promoting their services. For details visit Premier Business Centers-San Gabriel Valley Office Space

Interested in Real Estate investing? There are so many options to real estate investing from residential properties to multi unit housing. Multi unit housing is a common investment, although it can be risky, there is great potential to make a lot of money.

There is not a steep learning curve to multi unit housing, it is very similar to buying a home, or second investment property just on a much larger scale. Like buying a home, you have to find a property that suits the your needs. Does it fit in your budget? What kind of revenue will it produce? Is it in a desirable location? The process to find a multi unit may take a bit longer; it’s not like the residential market where new properties are on the market continuously. You have to be a bit more patient when finding those perfect multi unit properties.

Once you have found that perfect property, it is now time to make the purchase. This seems to be the point when most multi unit properties don’t become multi unit purchases. Most of the time you have to put down a lot of money, to secure the purchase. The amount is considerably larger than the down payment on an average single family home, which scares a lot of people off. However if you can get passed this point, the chances of making money on a multi unit property is much higher.

This is best part, once you have completed the purchase there is so much you can do. You can fix up the property and find tenants for your suites. You can hire a property management company that will take care of the building operations. You can even turn around and sell the property.

Investing in multi unit housing can be a great experience. It is a fabulous way to make large profits. If you are serious about these types of investments, there’s information available on the Internet or ask your real estate agent.

Dan Standeven is an Author and seasoned Real Estate enthusiast who provides Free Real Estate Articles including articles such as
Commercial Investing - Multi Units provided through his website at http://www.realestateeditorial.com

If you want to avoid any surprises the day after you close on a piece of property, then due diligence is highly important. Simply put, due diligence is examining and investigating that many different details that are a part of a potential investment. Doing this extensive investigation will allow you to get a better idea of what you are getting into and will let you see whether or not this investment is for you. Before you even make an offer on a piece of property, you should be starting this process, but after the offer is made you can make provisions that will allow you to look over important documents and have inspections done before you actually close on the property. It can be very difficult to get all the information you need during the due diligence process, and unfortunately may buyers are not prepared for this process. Buyers who are not adequately prepared usually end up bailing out on the deal or trying to get a settlement. Knowing where to look for the information you need is important for you to be successful at this process. The following is a list of helpful resources for you to add to your due diligence toolbox so your due diligence process will not end in disaster.

Ownership Data

If you want ownership data, one of the best places to start looking is at the local courthouse. Recorded documents such as deeds, liens, subdivision plans, and easements are usually kept up by the government. As a general rule you will be able to find this data at the courthouse, and usually they will be found in the Tax Assessment Department or the Recorder of Deeds Department. If you are not able to go to the courthouse for the information, there are a variety of online databases that may be able to provide you with the information you need, such as www.realquest.com and www.searchsystems.net . It is important to keep in mind that unless it comes directly from the courthouse, there could be problems with the accuracy of the data.

New Construction Communities

You may also want to find out who the builders are in your specific area. There are a couple ways that you can obtain this information. You can go to the land development or code enforcement offices of the municipality and get a list of approved developments and subdivisions. Another option to find out this information is to go out and visit the construction sites yourself. At the sites you can speak with the construction agents and pick up brochures on the builders.

Municipal Records

Municipal records can be a great help to you, but you need to develop a list of the properties you are interested in for further investigation. After you have your list you can then make an appointment at your local municipal building to review development plans and files that are available. This type of information is available to the public, and you can review material from municipal meetings relating to actions taken by the municipality.

Utility Maps

Having utility maps can prove helpful when you are going through the due diligence process as well. If you want to acquire these maps you may need to check out the mapping that is available from the water and sewer authorities in the region. Private water companies may be able to help you find these maps, or you could even try to get them from the county planning commission as well.

Zoning

Zoning information can be difficult since the zoning properties are different everywhere you go. You will want to find out zoning information in the area you are interested in. You can contact the zoning officer at the local municipal office for information on zoning, or you may be able to find it through private vendors as well. Once you have this information, it is important that you read through each ordinance and not just the zoning classifications. There can be important information that is hidden within the ordinances that you need to know, so read it thoroughly.

Proposed Highways and Facilities

When going through the due diligence process, it is helpful to know about proposed highways and facilities. If you need this type of information, the best place to check is with the local municipality, or through the regional planning commission or the county planning commission.

Floodplain Maps

When you are considering a piece of property it can be very helpful to know whether or not that property is located in a flood zone. If you need floodplain maps of the area you can check with the local municipality or you can go online to www.FEMA.gov to find the information as well. If the land you are investigating is subject to any flooding you will be able to see this by looking at these maps.

Whether you are going to close on a small single piece of real estate, or you are working on a larger deal, due diligence is extremely important to the entire process. If there are any problems, due diligence will give you the opportunity to get a better deal on the piece of real estate, to have problems dealt with, or to walk away from the deal if that is necessary. Do yourself a favor and keep these due diligence tools in mind and use them to their fullest potential to prevent any real estate disasters and buyers regrets.

Tony Seruga, Yolanda Seruga and Yolanda Bishop of http://www.maverickrei.com specialize in commercial and investment real estate. As of May, 2006, they and their partners are managing over $600 million dollars worth of new projects.

After owning your commercial property for several years, it’s time for you to sell the property. There are a few things you should know and consider before listing your property.

What Commission You Should Pay?
It’s often a percentage, typically from 3 to 6% of the list price. The commission is negotiable and dependent on various factors

1. Price: in general the higher the price, e.g. $10M, the lower the percentage.
2. How difficult it is to sell it. For example to sell a vacant building in a declining area, you should pay a higher commission.

As a seller, it is tempted to think your net proceed is more if you pay low commission. However, when you take away the commission, you take away a very strong and perhaps the only incentive from people who make a living selling your property to their investors. They may choose to sell other properties instead. Less competition may result in lower price for your property.

The commission is often split 50/50 among the listing office and the selling office. However, it’s not always the case. Some listing office feels it deserves 2/3 of the total commission because it has 2 people working as a team. The question to ask is “Does this commission split best serve your interest?” As a seller, you want to get the biggest bang for your buck. That means a fair split that will most likely bring the most number of offers to the table. So you should consider asking the listing broker to:

1. Split the commission 50/50 with the selling office.
2. Make the listing available to all brokers inside AND outside of the listing company at the same time. Some companies have the policy of keeping the listings in house for the first 30 days. This allows the office to sell the property to just their own clients and keep the all the commission. Once they cannot sell the property to their own clients, they make the listing available to all other offices. This action is in conflict with your interest and may even be unethical because the property does not have maximum exposure to all the potential buyers.

By doing so, you will be likely to get the most number of offers. As a result you will be likely to get the highest price for your property.

Some brokers specialize on “no commission to the buyer’s broker” listings. Sellers only pay commission to the listing office and buyers must pay commission to their agents. This may sound fair to you as a seller and you would think your net proceed would be higher because you don’t have to pay a commission to the buyer’s broker. However, this author is not ware of any studies showing the seller gets more money with this approach. The reality is different because:

1. You take away the most important incentive from the selling brokers: money. They may decide to sell other properties to their clients instead.
2. Even when sellers pay commission, mentally the buyers still think they are really the ones who pay the commission which is included in the purchase price. This is the reason some buyers prefer to buy “For Sale By Owner’s” or FSBOs.
3. Buyers must come up with more money to buy your property. They cannot get financing for the commission since it’s not included in the purchase price. This may discourage buyers from making offers.
4. Buyer’s broker may present an offer and state that the real price is the purchase price in the contract minus his commission.

As a result, you are less likely to get the maximum numbers of offers and consequently not the highest price for your property.

Does it matter which broker should you hire?
While any licensed real estate agents can list your commercial property, you don’t get any benefits when you hire a residential specialist to do the job. Commercial and residential properties are 2 totally different products which require different marketing plans and selling process.

1. The brochure: commercial properties normally have a brochure instead of a flyer as often used in residential properties. The brochure is given to potential buyers who may be out of the area, out of state or even out of the country. This brochure contains pricing, property pictures, site plan, satellite map, rent roll, income, expenses, demographic, and traffic volume information. Investors often look for information that they really care about such as Net Operating Income (NOI), cap rate, and lease term (gross or NNN). They often make offer based on the information in the brochure alone without even seeing the property personally (they inspect the property during due diligence period). Some of the information in the brochure may be confidential, e.g. rent roll, in which you may want the buyer to sign a confidentiality agreement first.
   

2. Pricing: Most commercial properties are one of a kind and very unique in appearance, quality, location, lot size, number parking spaces, tenants list, etc. Many have no comparables like residential properties. So setting the right price is more complex and not as straight forward. Should it be priced based on net income, market value or construction cost? The property would not sell if priced too high. You lose potential profits when priced too low. So you want a commercial specialist to do this.
   

3. Documentation: sellers are required per contract to provide various documents, e.g. survey and environment assessment report, not typical needed in a residential transaction but required by commercial lenders. Not providing all the required documents to the buyer in a timely manner may jeopardize the transaction.
   

4. The offer process: In commercial real estate, the selling broker often presents a one-page Letter of Intent or LOI instead of a contract. This LOI states the key points: price, earnest money, due diligence period, financing terms, and closing date. Once the LOI is accepted, both parties will work on the contract. A commercial listing broker will not ask the buyer for a prequalification or pre-approval letter which is typical in residential transaction but not in commercial transaction. This is because the loan approval process for commercial property is so different such that lenders don’t issue a pre-approval letter.
   

5. Escrow: it normally takes 21-30 days for due diligence or buyer to investigate the property and 60 days to close escrow when financing is involved. A commercial real estate broker won’t demand 30 days escrow like in a residential transaction because he knows it takes a long time for a commercial lender to approve the loan.
   

6. Financing: in commercial real estate a higher percentage of transactions do not close because the buyer cannot get the loan. In a transaction that involves SFRs, if the buyer has 30% down payment then it’s almost certain that the loan will be approved. However 50% down payment is not even sufficient for many properties in California with cap rate of 5% or lower. Please refer to the article “What Investors Should Know about Commercial Loan” written by the same author. So a listing broker with experience about commercial financing will be able to advise the seller not to accept an offer with a remote chance of getting the loan approved

David V. Tran is the CEO eFunding Inc., a commercial real estate brokerage, commercial loan broker, property management, self-directed IRA investment, TIC and syndication company in San Jose, CA. His website is http://www.efundingcom.com. He may be contacted at (408) 288-5500. eFunding does business in all 50 states. He is selected as Pensco Trust’s (a major self-directed IRA custodian) Preferred Professional. David is well-known for his 3 FREE real estate investment seminars:

1. How to invest in commercial real estate for retirement income NOW.
2. How to maximize cash flow with 1031 tax-deferred exchange.
3. TIC/Syndication: strategy for small investors and self-directed IRA investors to acquire high-valued properties.

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   Posted In: Commercial-Property, Real-Estate