When you’re hunting down deals, you’ll often face sellers who don’t want to sell because they’re in a down market. Here’s an article that will give you the key to negotiating commercial real estate deals at lower Ppices with tips and hints at how to walk them through their decision to sell so you can pick up their buildings and make money investing in real estate through the recovery.
Start here with the seller: When do you know that selling commercial real estate in a down market is the right decision? Ask Sam Zell. He says, “Everyday you’re not selling, you’re buying.” If he’s right, then how do you make a decision about the right time to sell commercial real estate in a down market?
Here are 4 tips for negotiating commercial real estate deals that answer question:
- Commercial real estate values are determined by how much you’re willing to accept and what someone is willing to pay. It’s the intersection of these two opinions that is called a ‘meeting of the minds’ and that determines the value of your investment property at that point in time. This is also known as fair market value.
- Everyday that you choose to own your commercial real estate investment, you are agreeing to own it for its fair market value.
- The investment property’s value fluctuates from day to day. Each day that you choose to own it, you agree that its value that day makes it worth owning and that you would buy it back for that price right now, whether it be higher or lower than the day before.
- Once you decide that you would no longer pay the current price for your commercial real estate, you become an investment property seller.
Zell’s statement boils down to your asking whether your capital works harder in your current commercial real estate investment or somewhere else. If it’s better invested in your commercial real estate, keep your property. Don’t sell it. Commercial real estate values will come back.
But, if you see other investment opportunities that provide you with a better return, i.e. look at Apple stock in February, 2009 at $68/Share, now trading for $214/share, or other acquisition opportunities where you increase your capital’s velocity above its current performance, you may want to reconsider holding on. If Zell’s right, and I think his statement applies to both up and down markets, even flat ones, then everyday you hold that commercial real estate investment in a down market means that you’re buying higher today and selling for less tomorrow.
Consequently, the right time to consider selling your commercial real estate in a down market is when you know that your capital will work harder in an alternative investment and that you would not invest in your investment property today. Your opportunity cost is too high to hold on and you’re better served moving to another investment.
By the way, where should we send your free 10 part email mini course? It’s 100% commercial real estate investing focused and you can get it here.