Top 5 Myths Commercial Real Estate Investors Believe

If a property’s up for auction, there’s something wrong with it.

This myth has gained a lot of traction since the housing crisis, when many homes in foreclosure hit the auction block in a state of disrepair as they were abandoned by homeowners and banks alike. While it is true that some properties may be distressed, most commercial auctions feature buildings that are fine, particularly if they have had tenants in them for the duration. In the world of commercial real estate, an auction is merely a business choice the seller makes to get the best price or the quickest sale — it’s not necessarily a measure of last resort.

You can’t look around before bidding.

This is another myth that has grown larger than life since the Great Recession, and it’s been popularized on shows like HGTV’s Flip or Flop, in which house flippers peer through the windows and surreptitiously drive by abandoned properties to try to guess what’s going on inside.

Luckily, a commercial auction is the owner’s choice, and they usually want to attract as many buyers as possible, so they’ll provide all the information you need to do your due diligence before bidding.

You’ll get swindled with hidden costs.

Speaking of due diligence, savvy investors work with professional commercial real estate auctioneers and a smart legal team to make sure their “i”s are dotted and their “t”s are crossed. You’ll know going in if there are liens or back taxes, and buyers almost never need to pay a fee to participate in the auction.

You may have to prove up front that you can back up your bid in cash, but you should never find yourself in a pay-to-play situation when you work with a reputable auction house.

Buying at auction is preying on other people’s misfortunes.

This myth arises from the misguided idea that auctions only happen when the bank forecloses on a property. While that may sometimes be the case, it’s equally as likely that commercial auctions are the method of choice of a savvy seller. Even if a commercial property is in foreclosure, it’s incredibly unlikely that a mom-and-pop shop is being pushed out of business. Instead, the owner probably made a calculated move to get out of their investment. There’s no moral wrongdoing in buying at auction.

All auctions are rigged.

If you’re worried about dishonest sellers driving up the price by planting ghost bidders or other underhanded tactics, relax. Commercial real estate transactions are highly regulated, and reputable auction houses couldn’t stay in business if they cheated buyers — word would get around too quickly for that to be a viable business practice.

If you’re concerned about how it works, attend an auction and gain a thorough understanding of the process before you decide to participate. As in most things, knowledge is power!

If you’re interested in commercial real estate auctions, do some research beforehand and talk to an auction house to better understand the process. While not everyone loves the thrill of the auction setting, it’s no more or less risky than any other commercial real estate purchase when you know what to expect.

Real Estate Investing Questions

Is it better to invest in residential or commercial real estate?

Residential or commercial pick your poison. Think about the last 2-3-4 years. Hey, what geniuses are left? We can go further later but it’s simple. Whatever fits your style. A quote from me to a good friend of mine who owns an industrial building: “When your building is full and tenants are happy you are a genius.” “The minute that changes and you come out of pocket you are an IDIOT!” Sounds simple. The everything in-between is the called The Commercial Real Estate Business.

What are the fastest and best ways to find commercial property/deals?

Well, this is another simple answer. A. There is none B. Hard ass work. C. Pay some online pimp scammer to give you a checklist that’s not worth crap. D. Actually take the time, work and effort to get to know every commercial inch/number/stat/trend/price/vibe/ in your own back yard!

How to find partners who will put you in the deal for 0 money or experience.

Can’t believe I’m wasting time on this one. READ THIS>>> IT WILL NOT HAPPEN! They have the money, they find the deals, and they do them themselves, PERIOD. If it is such a fantastically stupendous earth shaking deal…why did they all pass it up? It slipped thru and got to you…REALLY?

How to find and buy properties and not pay any attention to the Cap Rate or ROI.

Analytics, it is the true pure life blood of commercial real estate. There are classes, there are programs, and there are businesses that exist just for the purpose of analyzing commercial real estate. Become the best commercial real estate analyst that you and everyone you know…know. There are no short cuts, there are no “to good to be true” deals.

Financing …Every way possible to not use the existing system to get deals.

Lenders and Financing….[SIGH] what a mess, what a fiasco, what an industry. Obliviously not a lot of love coming from me. This is a subject that needs a complete series in itself. Give up your first born and have cash in escrow and still not get financing. Seen it more times than not. Alternative or seller financing….. You deserve what you are surely going to get.

How to use your internet skills and create a commercial real estate wholesale business.

Yeah, that’s how you can do it. Just surf. No one else has the “special” access/knowledge/ typing/aggregation/ list making skills that you have. A little heads up>> we all have access to the internet! Creating bullet point lists with three paragraphs of how to tips…and junk not a business…it’s a time suck hobby. How many “deals” or “buyers” come from this…Oh, I know someone will jump all over this and say ”but I have made kabillions from”….. Yea sure, add those in with your MLM checks. Investors…oh wait; real investors are doing the real deals. Want to make money getting on the internet and creating lists…think recipes.

Find the markets that are easy to find and flip quickly with little or no effort.

How about your own back yard….oh I forgot there are no good deals there. Grass always looks greener. Big market looks into small market because the small market people are not as savvy as they would be in a big market. Small market people look to the big time because hey, it’s the big time. The numbers always look better with some sunny pics and a flight/recon/market drive by weekend stay over. I know I know all the world is out there. Yea and I forgot..what are you going to do with that 300 buyers list and squeeze page? Maybe the banks have already beat you to it.

Real World!

I know that this post may seem a bit contrite and preachy, maybe a little harsh and hardcore with some attitude (what I am known for), maybe I am just setting the tone for what’s to come in future posts. I have run into and dealt with just about every type of …no check that I have run into and dealt with EVERY type of investor/broker/owner/lender/developer/vendor out there. What most every serious investor is looking for is practical, realistic, on the street, this is how it is really done in the real world advice. That is exactly what you are going to get. Straight talking, hard ass, hardcore commercial real estate. I’m looking forward to learning, talking, and discussing commercial real estate with the “tons of smart and savvy people in the commercial real estate business.”