Discover the 3 biggest opportunities in commercial real estate right now! In this video, we’ll outline 3 challenges in the market and the big opportunities they are creating for investors, plus provide actionable steps to ensure you don’t miss out.
Opportunity #1: Commercial and Multifamily Loans Coming Due
Despite uncertainties in the commercial real estate market, there are significant opportunities that you can capitalize on right now. One such opportunity is the commercial and multifamily loans that are coming due over the next few years. Commercial and multifamily loans are different from residential loans. Unlike the fixed 30-year interest rates often seen in residential loans, commercial loans have shorter lifespans, typically due in five, seven, or ten years. While the payments may be based on a 25- or 30-year amortization, the reality is that the loan must be refinanced within those terms.
Many commercial property owners secured loans with interest rates around 3-4% a few years ago. However, as these loans come due in 2024 and 2025, refinancing becomes a challenge due to higher interest rates and increased operational costs. In fact, I read recently that $61.8 billion are set to mature in 2024 and $84 billion in 2025.
Opportunity: Many property owners will be unable to refinance their loans due to lower than anticipated NOI and higher interest rates. When owners face the reality of doubling interest rates, many will struggle to maintain cash flow or even qualify for new loans. This creates an opportunity for investors to locate owners of expiring loans and potentially acquire distressed properties.
Actionable Step: Locate loans that mature in in the next 12 months or less and go direct to the owners of properties with expiring loans. You must go direct to the owner of these properties because having a middleman, like a real estate agent will keep you from building a relationship with the seller. Working directly with property owners allows you to negotiate better deals, leading to higher cash flow and forced appreciation.
Opportunity #2: Mismanaged Properties in Good Areas
The second opportunity is finding good properties in good areas that are mismanaged. Many properties in prime areas suffer from poor management. For instance, I know of a 48-unit C-class property that hasn’t seen upgrades since the early 2000s, located next to a major medical facility in a great residential neighborhood. Despite its potential, poor property management for the last seven years has kept rents below market levels.
Opportunity: This property is for sale at a reduced price because it’s not performing; the income that comes in can’t support a market price. Which means there’s an opportunity here for investors. But the key is once you find a mismanaged property in a good area, you must know how to operate it and that’s where most beginners fall short. And this is when having a mentor is so important. Creating wealth with commercial real estate isn’t just about acquiring the right property, it’s also about how you operate and optimize the property so you can make a profit. By renovating and improving property management, you can increase rents and cashflow. With this 48-unit property, you can multiply the cashflow and force the appreciation with just incremental rent increases.
Actionable Step: The strategy is straightforward: identify mismanaged properties in good areas, renovate them, raise rents, and implement effective property management. How do you find these types of opportunities? To find these properties, you must go off-market, bypassing online platforms like LoopNet or CREXi. You won’t find these deals on LoopNet or Crexi or the MLS. Again, this is yet another reason why investors join our mentorship program: we give them the tools they need to find off-market value-add deals.
The Best Deals Are Found Off Market
Ken, one of students, is a perfect example of how this strategy works and why mentorship matters. Using our proprietary techniques, last year he found an off-market 24 unit property for $1.2 million. After spending a couple hundred thousand dollars on renovations and raising the rents, the after-repair value is $2.3 million. Today, Ken is in the process of getting this property refinanced to pull out his initial down payment plus the renovation costs and still cashflow $4,000 a month! That is the potential of multifamily investing when you find an off-market deal.
In the current market you need to go direct to the seller because nothing on the market makes sense right now. Some of my best friends are real estate agents and they are great people. However, for their business to do well, they need to sell for high prices. High prices combined with a sky-high interest rate means little to no cashflow for investors, which is why we teach our students strategies for finding off-market deals.
Opportunity #3: Prepare, Be Ready, and Attack
The third opportunity is to prepare for changes in the real estate market and be ready to take advantage of opportunities when they arise. An old proverb advises,
“Prepare your work outside; get everything ready for yourself in the field; and after that, build your house.”
This proverb emphasizes the importance of planning BEFORE taking action. So, if you want to invest in commercial real estate, you have some planning to do. Secondly, this old proverb expresses the importance of preparation for opportunities to come. Are you ready for the unknown changes coming in the real estate market?
Opportunity: Right now, you can prepare yourself and part of that preparation is to bring order to your life. Something my pastor said stuck a cord with me and it applies here. He said, “Order determines outcome”, meaning having order in your life determines what you do with opportunities when they are presented to you. Being prepared means getting everything in order before the opportunity arises.
Actionable Steps to Prepare: Invest time in learning about commercial real estate by tapping into any of our free resources: we offer a commercial real estate course, and a book called Commercial Real Estate for Beginners. You can also subscribe to our YouTube channel learn more from our weekly videos. And if you are ready to take the next step, consider applying to our Protégé Program, where our experienced team will prepare you for market shifts, help you find the right deal and ensure you are ready to act when the right opportunity comes.
Questions or Comments? Text PETER to 833-942-4516.
Every Successful Commercial Real Estate Investor Has a Mentor
Every successful multifamily investor has a mentor. Get your mentor here: Commercial Property Advisors Protege Program
Leave a Reply