Mayor Bowser and the Office of the Deputy Mayor for Planning and Economic Development, in partnership with the Council of the District of Columbia, are strategically investing up to $4 million in the Commercial Property Acquisition Fund. The Commercial Property Acquisition Fund (CPAF) is devised to provide down payment assistance through grants of up to $750,000 or 25% of the sale price, whichever is less, to eligible businesses looking to maintain and expand their operations to a physical presence by acquiring commercial property located in the District.
The Commercial Property Acquisition Fund offers grants aimed at providing much-needed support for equity impact enterprise business or business eligible to be a certified equity impact enterprise who seek to purchase and locate within commercial property within the District of Columbia. An equity impact enterprise is a resident-owned, small business that it is at least 51% owned by an individual who is, or a majority number of individuals who are economically-disadvantaged or have been subjected to racial or ethnic prejudice or cultural bias.
In the commercial real estate business you will eventually come across a distressed commercial property. Some of these distressed properties could turn a huge profit if you could just find a way to buy them and fix them up. I am going to share with you not only what a distressed commercial property is, but how to locate and buy them.
A distressed commercial property could be physically challenging the owner by being run down, obsolete, or having deferred maintenance such as a leaky roof or exterior/interior problems, but no money to fix it.
A distressed commercial property could be financially challenging the owner if it is producing a negative cashflow each month, which forces the owner to pay out of pocket. Insufficient cashflow to handle the typical operations of a commercial property could cause it to become distressed.
A financial distressed property could also mean a property underwater, meaning they owe more than it is worth. Or it could be in financial distress due to some sort of personal issue such as divorce or sickness.
The third type of distress an owner can experience is legal distress. This could be anything from pre-foreclosure, liens, lawsuits, building violations or even partnership situations, where partnerships could be going south
Each deal has a story. Your job is to get the story, and the more of the story you get, the better you are able to buy the property and know how to buy it. You will know which financing strategy will work and what your exit strategy should be. It is very important to get the story on any distressed property you are interested in.
If you are a beginner, do not try to do this yourself. Our students are able to get expert help from our company, because we help them put these deals together with military like precision. It is crucial that you have an expert guided plan to do distressed commercial property deal successfully.
When the after repair value of the distressed property is greater than the acquisition cost, the repair cost, and the holding cost, that's when it makes sense to buy. The after repair value (ARV) means the market value when a property's stabilized. So when the ARV is greater than the sum of the acquisition cost, repair cost and holding cost, it makes sense to buy a distressed commercial property.
So if my after repair value is 1.8 million dollars then it is a good deal. The 75% target is important because it is important to have a goal number and it is also important for refinancing reasons. When you are done repairing your property and it has stabilized, it is going to have an after repair value.
So if the ARV is 1.8 million and the bank will loan 75% of that then that equals 1.35 million which was your total cost of the property. This means the loan will pay off your original hard money loan, plus reimburse you for your repairs and holding costs.
Now you can use these five things to find good deals, but GREAT deals are created. Great deals are found by getting the story of a distressed property that you have come across. They are also found by getting expert help on how to proceed with a distressed commercial property.
In order to purchase a distressed commercial property, you have to have the right mindset. The average investor will know the signals of distress, but do absolutely nothing. They have a customer mindset, which causes them to focus on what something will cost rather than the potential benefit.
If you are unable to qualify for a typical loan, you can use a hard money loan. I have a video on how hard money loans work and how one of our students used a hard money loan to purchase his first commercial property. Hard money loans are expensive and do not leverage very high. The interest rates can be between 12 to 15%, and it can cost 4% to 6% upfront origination points as well just to use the money
My team and I typically purchase distressed commercial properties with creative financing. Most distressed properties have financial and physical issues that cause traditional funding to be difficult or sometimes impossible. With creative financing you can create your own terms and be as creative as you want, as long as the seller agrees to the terms.
This is where the seller becomes the bank. The seller can give you your first or second loan on the property in order to close the deal. I have a video on Creative Financing With Commercial Real Estate that explains seller financing in more detail.
If you have watched any of my videos, you already know I stress the importance of having an exit strategy before buying a property. In fact, when you are making an offer you should have several exit strategies already planned out.
I found a distressed property that I have a contract on. It is a specialty property and I borrowed money from family to pay cash. It will take awhile to rehab and get the license I need to operate a business from there.In 08 the property and business sold for 1.3 million dollars. The market crash caused the owner to be upside down and they walked away from it. I now have no cash except my income which is about 7000 a month. This seems like a great opportunity which came about thru a catastrophe. Im concerned because the taxes are 26,000 a year which Im hoping will be reassessed.
To start out with a disclaimer, buying a commercial property without money or experience is very difficult to do. Sure, this could be a breeze if you have an honest face and the ability to sell snow shovels in Hawaii. Otherwise, pitching your deal and having no track record or skin in the game is likely just to reward you with sour faces from investors and lenders.
As a commercial mortgage banker, my office gets calls every day from up-and-coming real estate investors who have nothing to contribute to their deal except enthusiasm. Most of these calls are just annoying. But over the past 24 years, I have assisted over 50 of these entrepreneurs who did not have any money or experience get their deals closed. Why Because they found the right property, in the right place, at the right price with great value-add opportunities. This ensured that they could raise the cash and attract experience-rich private investors who could qualify for my loan.
1. The subject property is outstanding: You have found a commercial property to buy that has at least two of these four attributes (and if it has all four, I will drop everything to get your deal started): a) it is in a good neighborhood; b) it is priced below market for its condition; c) it already has enough net operating income (NOI) to cash flow the mortgage payments; d) the property has a strong repositioning upside. This can include rents that are already under market, a lower than market occupancy or the need for inexpensive operational and cosmetic changes that will enable rents to be raised.
3. You have a high net worth investor or proxy: Find someone to mentor you who has the high net worth, cash and experience that you lack. By achieving this, you can tell listing real estate brokers and lenders truthfully that you represent this high net worth investor and are searching for properties for them. Boy, will that open up some doors. This investor might actually be the key principal you use for the deal or you might end up finding another one prior to closing. I have made many loans where this individual was replaced by another qualified investor.
6. Your pro forma shows strong financial returns: This is also a big one. After repositioning the property, investors need to get excited about the return on their investment. A minimum of 8% annual cash-on-cash return (CCR) is essential. Of course, 10%-12% is much better. More important is the annual internal rate of return (IRR). This is income from operations and appreciation combined. Commercial properties almost always earn more from appreciation than operations.
Investing in Michigan commercial real estate is no minor undertaking. Few prospective purchasers sign agreements to buy commercial, retail, or industrial property on a whim. Nor do they do so without conducting substantial due diligence to evaluate the transaction's risks and potential rewards and determine whether it is likely to result in steady, lucrative returns.
\"Location, location, location\" is a fundamental platitude about real estate for good reason. For commercial property, an investment's success or failure often comes down to whether the property is in an area that can attract desirable renters and consistently deliver high occupancy rates.
This often depends on the nature and proposed use of the commercial property relative to its surroundings. An attractive location for a warehouse and industrial property may be an empty wasteland for retail tenants who need higher visibility, accessibility, and steady customer traffic. Also, consider your investment location on a macro level, looking at the area and region's longer-term economic, employment, and population projections. 59ce067264