The Ideal Team for Every Commercial Real Estate Investor
Behind every great investor is an outstanding team.
This team provides coverage on all aspects of the investment process, from inspections pre-acquisition to assembling the proper paperwork at closing.
If you’re going to be investing in real estate, it’s crucial to surround yourself with the professionals that help take you to the next level.
Here are the professions that make up the ideal real estate team for every investor.
Commercial Real Estate Broker
Commercial brokers bring a number of the benefits of having an expert in your corner.
By virtue of working in the field, an experienced commercial broker will know the market through and through - they can help you meet your goals while staying true to your budget.
Brokers are the front-line in the search for sites.
Let Your Broker Do The Heavy Lifting
While you’re taking care of business, your broker can handle the grunt work associated with vetting a property and negotiating a contract.
Instead of having to call every possible option, set up tours, and then make a decision based on the comps, your broker will help narrow your choices without your presence and bring you in to see the best options.
The broker finds the space; you sit back and relax.
They’re Invaluable During Negotiations
After you choose a property, the negotiation begins, and this is where the broker’s knowledge is particularly helpful.
Commercial real estate is nothing like residential real estate.
Every commercial property is different and almost everything is negotiable.
Brokers know market value and can help you determine fair market prices, as well as what you should watch out for during your initial review.
And They Won’t Cost You a Dime
Commercial brokers are generally paid like residential agents.
Instead of the buyer having to cover their representation, the seller will be responsible for paying the broker’s fee.
This style of compensation is especially helpful for the new commercial real estate investors - you have enough expenses to worry about!
In other words, your broker knows the market, will help you find a site, negotiate on your behalf, keep pulling everything in the right direction, and it won’t cost you anything.
In fact, using a knowledgeable broker will usually save you money by reviewing the contract and covering the big points with you while saving you the time of diving into the small and generally unimportant issues.
Real Estate Attorney
Regardless of the type of property or size of the deal, you should have an attorney review the legal documents.
Your attorney is a legal shield for you against everything that could go wrong.
And, if you’ve ever done anything in real estate, you certainly know that there is plenty that can go wrong!
Attorney’s Have your Legal Interests In Mind
Buying and selling commercial property is complicated.
There are a number of contracts, documents, and other moving pieces that can trip you up along the way.
Not to mention they review the zoning of the property and environmental reports!
At every step along the way, the attorney will be ensuring that any potential pitfalls will be at the very least made known to you and, hopefully, amended.
They’re Also Critical During negotiations
Just like brokers, attorneys are involved in negotiating contracts on a daily basis.
And many attorneys are highly skilled wordsmiths.
Combine the two? That makes for a fairly skilled negotiator.
Attorneys are well aware of what are and aren’t market requests during negotiations and can properly advise you as to whether or not you should accept any proposed terms.
Attorneys Charge Flat Rate and Hourly Fees
Your broker or a trusted advisor can suggest a real estate attorney who’s good at bringing the parties together and making deals happen.
Unfortunately, there are many attorneys out there who will try to find everything wrong with a deal so they can bill you all along the way.
You may also be able to have an attorney review everything for a flat fee, depending on the size of the contract, but most commercial real estate attorneys charge hourly.
Building Inspector
The building inspector’s responsibility is pretty straightforward: they inspect the property.
Unless you’ve been investing in commercial real estate for years and know construction inside and out, you should always have the property inspected before closing.
After the inspection, your vendor should provide you with a fairly detailed list of the property conditions, which will help you further understand what you’re buying.
Inspectors Are an Objective Set of Eyes
To the inspectors, it doesn’t really matter if you buy the property or not.
Their job is to shine light on the nooks and crannies within the building that you likely haven’t seen yourself and point out any pros or cons to the conditions.
It’s certainly helpful to have someone on your team that won’t be sugarcoating any issues at this point in the process.
If the inspector recommends replacement or repairs, you should heavily consider those recommendations because they don’t have a dog in this fight.
What If The Tenant Is Responsible?
In many multistory office leases, the owner will typically take all responsibility in a full-service gross (FSG) lease, so your inspection is crucial.
But what if your acquisition has ground-floor retail or office on any sort of net lease?
Depending on how that lease is worded, the tenant may be responsible for most, if not all, of the maintenance and repairs on the property.
Even in this case, you should lean towards the inspection.
At some point in the future, that tenant may not renew their lease and you could be inheriting a vacant space with some serious conditional issues, so it’s better to know and prepare for that on the front end.
Inspection Reports Give you Negotiation Leverage
A building inspector will examine the mechanical, electrical, and plumbing systems and prepare a report covering everything from the crawl space to the roof.
You can then use this report in your negotiation with the seller, if you feel it justifies a price reduction, and to help plan the space to fit your needs.
A good building inspector is worth the price you’ll pay for his expertise.
They’ll usually save you money (and headache) by making recommendations that you can have the seller fix or discount off the purchase price before you take control of the property.
It’s always better to have a complete picture of your new space, for better or worse.
Inspections Bonus: Expanding the team
When performing your inspections, you’ll also want to dig into and understand the site, as well.
Sure, the building (if the property isn’t vacant) is very important, but this point in the game, the site can actually determine whether or not you move forward.
You may also want to:
Have a survey shot
Perform a phase 1 environmental
Tests the soils with a geotech
Engage a civil engineer to review the site
Not every property will need each of these inspections, so it’s important to know when to take that next step.
General Contractor
Having the right general contractor (GC) can make all the difference to your bottom line.
They hire the subcontractors and oversee any new construction or renovation work on the site while (hopefully) sticking to your timeline and budget.
It may be worth finding a GC that also invests in commercial real estate, since they’ll understand your goals.
Finding the Right Contractor
Finding a general contractor for your project doesn’t have to be difficult, but spending some time will be worth it if you can find a good one.
Brokers, attorneys, and inspectors work with contractors routinely and can provide referrals, if you don’t have a contact in mind.
Make sure your GC has the reputation for completing jobs on time and that he pulls the permits necessary for the scope of work - I’ve seen plenty of contractors attempt to cut corners, meaning everything may not be built to code.
Be Sure They Have a Commercial License
The type of GC you hire is also critical in avoiding potential complications.
Just as there are different types of real estate agents, there are also residential and commercial contractors, and the two types are fairly different.
Commercial contractors follow a different set codes and use different materials, such as a commercial grade flooring that is designed to withstand heavy traffic without falling apart.
I’ve seen what can happen when residential materials are utilized on commercial projects, and it’s not pretty.
Commercial contractors are aware of your specific needs and will build to suit them.
Hire Right the First Time
It’s tempting to cut corners, especially at a time when you need cash to run your business.
Maybe you want to get by without an attorney or ask your handy brother-in-law to check out the property instead of hiring an inspector.
Don’t do it! Hiring experienced professionals will save you money in the long run.
Spend now to save later.
There’s a reason your broker recommends a professional inspection. Chances are they’ve seen what happens when the investor doesn’t know all of the potential pitfalls inherent in the property.
Similarly, attorneys and other real estate professionals are there to protect you.
Arm yourself with professionals who will make sure you know what you’re getting into, and you’ll face fewer surprises during your investment.
About The Author:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors as a board member for the Real Estate Investors of Nashville.
If you're serious about real estate investing, it's time to look beyond those quaint single-family homes.
Bold statement? Absolutely. But stick with me here.
Now, don't get me wrong. Investing in a single-family home beats twiddling your thumbs on the sidelines of the real estate game. And yes, I'll even go out on a limb and say that residential real estate still outshines many other investment vehicles out there.
But that's not why we're here today, is it?
I'm about to lay out five reasons why commercial real estate should be your go-to play.