The Real Estate Investor's Secret Sauce
There’s something that every seasoned commercial real estate investor knows but will never tell you – here it is…
Understanding the seller’s circumstances is the key to buying commercial real estate below fair market value.
Smart investors know the recipe to the secret sauce for real estate – it includes some common sense ingredients and a simple tool:
- Start with the ingredient list. When you go to market, get the following answers: What is the seller’s time frame? Are they in a hurry? Are they marketing the property aggressively or quietly? Is the seller a passive or active owner? Are they politically sensitive? Do they have a low emotional attachment? Are they fatigued with the property?
- Next, use a sieve to cull the lists of available properties. The reality is that professional buyers have hundreds of properties they can underwrite each day, but vetting and underwriting are time-consuming. Cardinal’s approach saves time by creating a sieve that every purchasing opportunity can be evaluated by. The result is that you quickly understand the deal and decide if it warrants your resources.
What if you are a seller? Be prepared when the shrewd professional buyer comes your way. Pros probe about the property characteristics while building an understanding of the seller’s circumstances. To prepare sellers for this, Cardinal developed The Comprehensive Asset Sale™. It is a comprehensive packaging process, assuring that you get the intended results.
When engaged as a Sellers Agent, we package the property with the professional buyer in mind. We highlight how the ideal buyer can gain value. We demonstrate a vision, inform about the obstacles, and provide the action steps to transform the asset to a higher value.
“Compete on solutions – never on price.” – el Cardinale
For example – Cardinal looks for corporate sellers. We help buyers aggressively seek out quiet sellers while being sensitive to the desire for confidentiality. Our market knowledge enables our clients to identify mispriced properties. Our investment sieve saves our client’s time. Our tools, such as Cardinal’s Prepared-to-Win Negotiation Worksheet™, determine a seller’s true motivations and alternatives early in the negotiation process.
El Cardinale’s Top 10 Seller Characteristics that every investor should know & every seller should be aware of...
- What is the seller’s time frame? Will the seller be patient and hold out for the last dollar or do they want to close quickly? Tip: Ask the seller’s agent – “What if we offer a fast close, all cash?” Brokers always want to close quickly, as a result, they may disclose the seller’s circumstances.
- How aggressive is marketing? Is the seller aggressively marketing the property or are they quiet about it? Tip: Look for deals in tier 2 and 3 markets offered through local brokerage firms.
- What are the seller’s alternatives? Does the seller have many alternatives or are you it?
- What is the ownership type? Is this a professional property owner or a passive owner? Tip: Passive owners often are not on the pulse of the market and have outstanding CAPEX, providing an opportunity for hands-on investors.
- What are the seller’s expectations? Are they high? Do they have unrealistic expectations? Does the seller not know what they’ve got? Does the broker have experience with this type of asset?
- What is the seller’s ability to market? Is this a seller who can market the property effectively? Have they chosen a competent broker? Is the broker on the pulse of the market? Has the seller prepared the asset for sale?
- How much market information does the seller have? What does the seller know about the market? Does he/she have perfect information or very little? Do you know something about the property or the market that the seller does not know?
- What is the seller’s political sensitivity? Is the seller ambivalent about the world knowing their situation or is this a political nightmare for the seller that they want to keep under wraps?
- What is the seller’s emotional attachment? Does the seller have a high emotional attachment, or are they ambivalent about the property?
- How long has the seller owned it? Have they owned the asset for a short time or are they fatigued with the asset and want to unload it?
Whether you’re a professional buyer or a seller, being aware of seller circumstances is key to success. Combined with a keen understanding of transaction alternatives and property characteristics, you are prepared to enter into a deal like a pro and be successful. A commercial real estate professional known for creating exceptional value once put it to me this way:
“Culbertson – you make money going into the deal, not on your exit.” – Henry Faison
I worked with Henry Faison for 20 years on a wide variety of assignments. Many of them provided well above average results. If you’re interested in discussing your plans for 2021, please do not hesitate to get in touch.