How do I find good deals and how do I know if they are any good once I’ve found them.
This is a question that I get asked all the time, especially by those who are new to investing and of course to commercial investing.
People who are new are generally highly risk averse and believe that if they can only find the perfect deal then all those risks will be mitigated.
Of course it’s true that when it’s your first deal… especially if it’s your very first investment property, the risks are quite high…
Not because of the risks inherent in any one property, but because your first deal is always going to represent the highest proportion of invested capital.
What do I mean by that?
When you first invest, let’s say you invest $200k into a property. That’s the cash you put into the deal which includes deposit and purchase costs.
If you have no money invested then it’s a huge place to start…
If you invest $200k into your second property then you’ve doubled your investment capital… but when you are starting from scratch it’s a much bigger step.
For this reason, those new to commercial investing often find themselves waiting and waiting to find the perfect deal.
The reality is that there is no perfect deal.
No matter how hard you look, you’re not going to find that one deal that’s going to be the best investment ever made.
Because commercial property investing is really all about cashflow what you need to realise is that every month that goes by without you not taking the plunge and investing in a property is in a way, costing you money.
Every month without a property is cash flow that you’ll never have in your bank account.
Obviously, all the normal rules apply. I’m not advocating that you rush out there and snap up the first thing you find.
You want to buy well at the start… perhaps with a strong negotiation you can pick up something cheaper than others in the area have recently paid. This is something I discuss at length in my commercial property investing course…
And if you can find something that has a good upside then you can build in a bit of equity right from the start. This can then help you speed up the process of moving onto your second investment property.
But at the end of the day, while those things are good, there are more important things you should be keeping in mind.
As long as the property is positive cash flow from day 1, as long as the lease is good and the tenant is a good one with some longevity in their business… then that’s much more important.
If you are intending on keeping the property for the next 10 or 20 years then saving a few dollars on the price or finding one with the perfect upside is really only going to be a drop in the ocean compared to the lifetime of positive cash flow you’ll be getting in the long run.
I was chatting to a student of my course recently who felt they’d missed out on a deal which ended up going for $100k more than they’d offered, even though at the $1.1m it went for was still in their price range.
They’d got stuck on getting in for the lowest possible price and missed out on the deal.
The reality was that the property had some great upsides, and even at $1.1m would have still been nicely positively cash flowed.
When I talked to them about what the cash flow would have been over the next 10 to 20 years, they really got to see that the $100k they didn’t want to spend right now was nothing by comparison to the cash flow…
And when I pointed out that they’d spent four months focused on this property negotiating and doing due diligence, that they had also missed out on any number of other properties that could have also been great deals.
There’s a massive opportunity cost with not taking action with commercial property that far outweighs other types of investment.
Missing out on real world cashflow is costly, and sometimes it’s just better to get into a deal that’s not perfect… but still good, rather than wait around for that perfect storm of all the right elements.
A bird in the hand, and all that…