matt doheny: the best time to buy commercial real estate

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE

CREATED BY MATT DOHENY

COMMERCIAL PROPERTY OFFERS BETTER VALUE THAN ITS RESIDENTIAL COUNTERPART.

COMMERCIAL TENANTS ALSO SIGN LONGER LEASES, WHICH GENERATE MORE CASH FLOW THAN RESIDENTIAL ONES.

COMBINED WITH BIGGER TAX WRITE-OFFS FOR COMMERCIAL PROPERTIES, COMMERCIAL INVESTORS SEE BIGGER RETURNS.

HOWEVER, DESPITE THE RELATIVE EASE OF INVESTING IN COMMERCIAL PROPERTY, STRATEGIC THINKING HELPS MAXIMIZE THE VALUE OF ONE’S PURCHASE.

LIKE WITH ANY OTHER TYPE OF INVESTMENT, THE AIM IS TO “BUY LOW AND SELL HIGH.”

THE ANSWER LIES IN THE REAL ESTATE

VALUE CYCLE.

SO WHEN IS THE BEST TIME TO

BUY LOW? …

PRICES RISE AND FALL IN 4 STAGES: RECESSION, RECOVERY, EXPANSION, & CONTRACTION

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECESSION)

DURING RECESSION, PROPERTY PRICES ARE LOW BUT FINANCING BECOMES SCARCE OR EXPENSIVE.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECESSION)

COMMERCIAL PROPERTIES ALSO HAVE HIGHER VACANCIES DURING THIS TIME.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECESSION)

NEVERTHELESS, BECAUSE SELLERS ARE MORE LIKELY TO NEGOTIATE A LOWER PRICE AND THE GENERAL PRICE TREND TYPICALLY FALLS BELOW REPLACEMENT COSTS, THIS IS THE BEST TIME FOR BUYERS WITH HIGH LIQUIDITY TO INVEST.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECESSION)

HOWEVER, POTENTIAL INVESTORS IN THIS STAGE SHOULD NOTE THAT IN ADDITION TO HAVING ENOUGH CASH TO PURCHASE A COMMERCIAL PROPERTY, THEY SHOULD ALSO HAVE EXTRA RESERVES TO PAY FOR CARRYING COSTS, EXPENSES ASSOCIATED WITH RUNNING THE PROPERTY WHILE VACANCIES ARE HIGH.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECOVERY)

AS THE REAL ESTATE MARKET IMPROVES, IT ENTERS THE RECOVERY PHASE.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECOVERY)

MORE TENANTS RETURN TO THE MARKET AS CONFIDENCE IN IT INCREASES.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECOVERY)

PROPERTY OWNERS CAN ALSO EXPECT BETTER FINANCING OPTIONS DURING THIS TIME.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECOVERY)

BUT BECAUSE PROPERTY PRICES HAVE NOT YET REACHED A ZENITH, THIS IS STILL AN EXCELLENT TIME TO BUY COMMERCIAL PROPERTY, ESPECIALLY FOR THOSE BUYERS WHO WILL NEED A MORTGAGE.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECOVERY)

NEVERTHELESS, A GOOD LEVEL OF LIQUIDITY REMAINS IMPORTANT AT THIS STAGE.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECOVERY)

MOST COMMERCIAL LENDERS LIKE TO SEE A 30% DOWN PAYMENT BEFORE THEY WILL GREEN LIGHT A LOAN.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (RECOVERY)

EVEN IF THEY REQUIRE LESS, COMMERCIAL SELLERS TRADITIONALLY REQUIRE AT LEAST A 20% DOWN PAYMENT FOR A DEAL TO BE STRUCK.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (EXPANSION)

ONCE RECOVERY IS COMPLETE THE MARKET BEGINS ITS EXPANSION.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (EXPANSION)

AT THIS POINT, VACANCIES ARE LOW AND FINANCING BECOMES READILY AVAILABLE, BUT THE PRICE OF REAL ESTATE MAY JUMP HIGHER THAN ITS MAXIMUM DURING PREVIOUS EXPANSION PHASES.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (EXPANSION)

FOR INVESTORS WHO ALREADY OWN COMMERCIAL PROPERTY, THIS IS THE BEST TIME TO “SELL HIGH.”

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (EXPANSION)

THOUGH IT IS POSSIBLE FOR BUYERS TO FIND A GOOD DEAL DURING THIS TIME, RISING PRICES MAKE DOING SO MORE DIFFICULT.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (EXPANSION)

POTENTIAL INVESTORS SHOULD BE MORE MINDFUL OF THEIR SPECIFIC NEEDS AND PRICE TREND INDICATORS IF THEY ARE LOOKING TO PURCHASE DURING THIS STAGE.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (CONTRACTION)

EVENTUALLY, THE REAL ESTATE MARKET BEGINS TO CONTRACT.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (CONTRACTION)

VACANCIES INCREASE AND PROPERTY PRICES START COMING DOWN.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (CONTRACTION)

BECAUSE THE MARKET WAS OVERSATURATED DURING THE EXPANSION PHASE, FINANCING BECOMES MORE EXPENSIVE AND HARDER TO GET.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE | (CONTRACTION)

PURCHASING MAY BE A GOOD IDEA, BUT PRICES WILL BE LOWER IN THE COMING RECESSION PHASE.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE BY MATT DOHENY

UNFORTUNATELY, THERE IS NO SET DURATION FOR ANY OF THE FOUR PHASES, AND SOMETIMES THE EARLY STAGES OF EACH ARE DIFFICULT TO ASCERTAIN.

THE BEST TIME TO BUY COMMERCIAL REAL ESTATE BY MATT DOHENY

NEVERTHELESS, AT SOME POINT THE SIGNS THAT INDICATE EACH STAGE BECOME CLEAR, ALLOWING POTENTIAL BUYERS AMPLE OPPORTUNITIES TO FORM THEIR INVESTMENT STRATEGIES.

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‣ Matthew “Matt” A. Doheny holds an extensive curriculum vitae as an entrepreneur, finance expert and political pundit which features past and current successes in the industries of the investment fund, distressed asset and financial management. Currently Matt serves on the board of Kodak Co. and Yellow Truck. He also functions as a Director of Affinity Gaming, and has done so since 2013. He is the proprietor of two of the “Thousand Islands” — an archipelago that sits between the Canadian – U.S. Border — and currently lives in Watertown with his family.