This is an introduction to the deal. It is a pretty little sales tool that’s purpose is to evoke emotion, to encourage you to take action. Unfortunately as emotion goes up, intelligence goes down. Therefore, we do not make offers based off the broker brochure.
Do not base your calculations off what the broker brochure says the property’s income or seller’s financials are, because these are not always accurate. You must do your research to get a better idea of the true value number. The seller’s motive is to make the numbers look good enough for the property to sell. You should always determine your own numbers and calculations for each commercial property deal.
Once you have calculated these seven essential costs and numbers, you will be ready to make an offer, based on what works for you. Come up with a cash and cash return that you are happy with, and also a cap rate that works for you. Next, calculate in all of the expenses, and come up with a conservative number that you can afford to purchase the property at.
1. Positive Cash Flow
2. Cash and Cash Return in the Double Digits
3. Deal Must Have Upside Potential
Upside potential means that you have the ability to raise rents over time and the ability to reduce expenses. You might even have the ability to chargeback tenants for utilities. All three of these things are going to increase your NOI.
4. The Property Must Be in a Stable and Growing Neighborhood.
Now again, if you want to get further understanding of how this works, you need to watch the video that I talked about earlier called, “The Seven Commercial Real Estate Terms You Should Know“. Watch that video and review it.
If you calculate the above 7 essential things before making an offer it will result in the following things:
Lastly, I would like to give you a bonus to the lesson. It’s a download of just a PDF that’s will break down how to come up with the actual numerical offer.
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