When you’re investing in flipping commercial real estate, it is possible to make $500,000 in 4 hours, but you have to know what you’re doing and beware not to succumb to many pitfalls that commercial real estate investors face with flips.
Imagine tying up a property, losing your deposit, wasting your due diligence money, and then potentially having to close on a deal that you never wanted to buy in the first place.
You don’t want to be in this situation. I’ve watched many investors lose money on flips that they hoped would work out, only to be disappointed and embarrassed when they failed.
If you’re going to invest in flipping a piece of commercial real estate, you must adhere to 3 critical tips to ensure your success, or else you may end of wasting time, money and energy on a dead end.
Here are 3 tips:
1. Make sure the next guy will pay more than you. Buyers will value commercial real estate differently depending on their use. For example, a bank may value a free standing building with a drive through differently than a used car dealer, which means that when you’re formulating your exit on your flip, establish a clear exit and know who your buyer will be. Not knowing your buyer and what they’ll pay could cost you.
2. Improve the net operating income fast by tenanting the property. Many investors I train search for properties that are 50% occupied because they like to buy them with a stable income. When they value the building, the income determines its worth and they know that if they locate a tenant for the other 50% of the building, they could double the net operating income as well as the building’s value. The trick to make this flip a success is first finding the building and second finding the tenant. Make sure you have a plan for both before you move forward.
3. Make your buyer sign a non-circumvent and confidentiality agreement before showing them the deal. Many investors play a win-lose game of negotiations and will try to circumvent you to cut you out of your deal unless you protect yourself. Before you show an opportunity to anyone, make sure they have signed the necessary paperwork or else you might get burned.
In all, before you draw up your purchase and sale agreement, make sure that you have your buyer profiled with a plan for reaching out and working your plan. And if all goes well, you’ll make big profits on your flip and enjoy your new found success.