Although the stock market, or other investment opportunities may be unstable right now, there is no better time to invest in commercial real estate than now. The reality is that when times are tough, interest rates are low, investments in real estate can come at a great bargain.
Lack of Market Demand Drives Down Price
When investing in real estate, you should always look at two main things, one is the market demand and the other is price. When you invest in a property you want to make sure there is demand for a tenant in the property. Things to look at are the business climate that you are planning to buy in and if there is market saturation of real estate. Make sure you are investing in an area where unemployment is low and business regulations do not eat away at a business’s profits. While these regulations do not carry over to the property owner, these are headwinds that discourage business opportunity and ruin your market demand.
Low Market Saturation Drives Down Price as Well
Second, look at the saturation of real estate. Obviously when you are investing in an area where demand for property rentals are high, you will generally see a lot of real estate investors flock there as well. But unfortunately, the real estate market is not static. If the market you are looking at is flooded with other real estate developers, you will not be able to generate the cash flow you were hoping for. Try to find the sweet spot between a market with good demand for real estate property but one that does not have too many properties available.
New Construction Projects
For investors who are interested in building a new property, a pandemic can provide some advantages as well. In the current economic environment, interest rates are low which allows investors to obtain lower interest rate construction loans while building. Low rates also enable larger purchases of land and help investors lock in long term financing when the project is complete. While other construction projects are slow, investors can obtain greater focus from their team who can take more time to concentrate on their property.
Property Defects Will Work More for You
When it comes to listing price, while cash flow from your tenants are important, where you really want to focus is on the defects of a property. Do not just take a property at face value, tour a property multiple times and keep an inventory of any improvements. Do your own calculations and market research to determine a fair value of an investment (Refer to our blog to learn how you to better evaluate a property). In a down market, you can use these defects more to your advantage than a market whose values go up.
Better Negotiating Power
When a person is trying to sell their real estate in this economy, they will be more flexible to the buyer’s advantage. Always low ball a purchase price but keep it within reason so that it is easier to focus on what you really want to buy a property for. If you are too low, you will scare a seller into believing you are not a serious buyer. Whatever price you have in mind do not go any lower than 20 percent. But starting with a low ball that has justification attached to it provides better negotiating leverage and opens the door for more time to collaborate. If the seller counters down from their original offer, you are in a good position.
Counteroffers Will Swing In Your Direction
When you get to the counteroffer, it is usually a good sign that a deal will be reached. But depending on the market demand, it rarely ends up in the middle. A seller will know in a down market that he has less bargaining power and might slowly move towards your low bid. However once a deal is reached, you will find that if you are in real estate for the long term, you will look back on your deal and be generally be satisfied that you bought your real estate for a steal.
