3 Unexpected Ways to Buy Commercial Real Estate

Published: 11-18-21    Category: Investing

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

a row of multifamily houses

Ever had a road trip go wrong, yet you arrived at your destination? Real estate can be exactly like that. You have an idea of where you want to go, but you have a lot of obstacles in your way. One issue we see pop up all the time is funding. If you have it, you have it. But if you don’t, you don’t. If you’re trying to learn how to buy commercial real estate, solving the funding problem is pretty important.

Going around the real estate forums with your tale of woe might earn you some sympathy, but it will not get your deal funded. There are a few unexpected ways to get your deal off the ground, and you get to build a foundation to make the next project smoother.

Private Money

So, there’s some odd secrecy around the term private money. The truth is that private money just means sources outside of the typical commercial lenders. This could be a friend, your cousin, or even the mail carrier that loves your Christmas sugar cookies. Those must be some delicious cookies.

Private money’s primary benefit is that it’s quick. Does somebody want to give you a hundred grand to help you buy that lovely mobile home park? They probably aren’t checking your credit. They believe in the vision that you have for the property.

It can be hard to look for private money because some people struggle with mindset issues around having friends and family help them out. Brush up on those presentation skills and let someone else know your vision!

Silent Investors

This is a little different from pure private money given to you because the investor’s level of "silence" will vary on the project. If you’ve ever reached out to your local real estate community, you might see others working together on various deals. You can form those partnerships as well.

The key to making silent investor deals work is to be fully transparent about everything. Written agreements trump verbal agreements every single time. In fact, real estate is all about written agreements. It is dangerous to try to do things "on a handshake" when you’re talking about real property and how to buy commercial real estate.

Commercial real estate deals are perfect for silent investors because they’re in a place to help you bring your vision to life, and you get to set up the deal as you see fit. Communicate to them every step of the way, including when you run into trouble. For example, if you’re trying to renovate a project and you start to run low on cash, letting your silent partner know this as soon as possible is the best way to go. If you’ve been honest the entire time, it can be a matter of them just sending you some extra money.

But Be Prepared to Navigate the Relationship

The danger with "silent" investor deals is that some investors try to just handle the entire project without talking to the silent investor. Let them know how you’re doing and what milestones you’re working on.

If you only want to do one deal, then maybe maintaining relationships isn’t that important. However, the money in the commercial property space has always been handled through the cultivation of relationships.

Think about it: you’re going to have to reach out to people sooner or later, and they’re going to want to know your thoughts and plans for your property. The more people you can get on your side early on, the better.

Be prepared for some silent investors to pass on your project if you’re very inexperienced. You’ll need to demonstrate that you understand not just key real estate principles, but also key commercial property principles. The commercial sphere is a very different place than its residential counterpart, so you have to keep that in mind when you’re explaining ideas.

Syndication

If there’s one area of real estate investing people ask about the most, it has to be syndication. The best way to understand syndication is to see it as a grand partnership: you’re working with several investors to not just purchase a property but manage it together.

There are two categories within the syndication deal: the syndicator and the investors. The syndicator’s job is to hunt for deals, handle the paperwork, and put in the elbow grease. If you don’t have money, you’ll have to step up with plenty of elbow grease.

Although syndication is simple, the reason why we consider it advanced is that there’s a lot of work involved in getting a syndication deal off the ground.

Which Path Is Best?

Generally speaking, private money is going to be one of your fastest paths to getting a deal funded, but you may be limited in terms of how much your friends and family can give you for the project.

Silent investors are a great fit for just about any project. The upside of going with a silent investor is that you can tap into their network when it’s time to flip the property if that’s going to be your exit strategy. After all, they get their money back out of the deal once you fulfill the exit plan, so it’s in their best interest to help you get a buyer.

Also, if you choose to pursue a for sale by owner plan instead of getting an agent, this helps you pull off a sale without having to hire a commercial real estate agent or broker.

Syndication is probably the most advanced method in this list. And yet, syndication on its surface is just crowdfunding with a fancy name. A bunch of investors get together to take down bigger deals. If you have a small bit of money but you want to join forces with a syndication group, this helps you get into a larger commercial project than you could on your own.

Start with private money options and then work your way up.

Considerations Moving Forward

It’s a tough place to be in when you can see plenty of opportunities for commercial deals, but you don’t have a lot of money. You’re basically taking off on that road trip, knowing that there are going to be obstacles that come up. Yet the reality is that just as there are obstacles, there are indeed solutions that you can use to get to your end destination.

Don’t give up. Acquiring that first property is always the hardest, but it’s completely worth it in the long run.

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