How to find commercial property buyers

Now that we are moving away from a socially distanced world, commercial real estate is on the upswing. Naturally, many people want to take advantage of this environment by selling commercial properties with high price tags and large commissions. However, finding buyers in this competitive and high-stakes arena can be challenging. 

So how do you find commercial property buyers? Read on to find out. 

What is commercial lending and how does it work?

Commercial lending is a unique subset of lending that differs from traditional mortgage lending for homes. Instead of providing financing for homes, commercial lending offers financing for commercial properties that will then be leased out to tenants. This type of lending looks similar to traditional lending, including an application process that often involves a credit check, income requirements, and asset verifications. 

With that in mind, there are different kinds of commercial loans to choose from, including long-term fixed-interest commercial mortgages, interest-only commercial mortgages, bridge loans, hard money loans, blanket loans, and construction loans. Here’s what you need to know about each to ensure that you make the best choice:

Long-term fixed-interest commercial mortgage

This financing option is the most similar to a traditional mortgage used to purchase a home. Like a conventional mortgage, this option is long-term but is still shorter than most home mortgages, which usually have terms of five to 10 years rather than 30 years.

Also, like a traditional mortgage, this option has a fixed interest rate that remains the same throughout the life of the loan. Depending on credit score, it is possible to secure an interest rate as low as 4% to 7% -- higher than home mortgage rates but lower than other types of loans. To apply for this type of loan, you need to be in business for at least one year, have a personal FICO credit score above 700, and occupy at least 51% of the commercial property with your business. 

Interest-only payment loans

This financing option requires monthly payments only on the loan’s interest with a complete “balloon” payment due at the end of the loan term. There are also “balloon” loans that allow you to pay a bit more than the interest every month for a lower balloon payment at the end of the term.

The terms for these loans are relatively short, typically ranging from three to seven years. This type of loan is appealing for businesses expecting a large payout at a future date while they grow or build their businesses.

Bridge loan

This financing option is ideal for investors looking for quick financing with favorable terms. In many cases, the application, approval, and underwriting processes for traditional commercial mortgages can take a long time. If you’re eager to get to the closing table and in the door as quickly as possible, you may want to consider a bridge loan that “bridges” the gap until you can secure permanent financing.

Bridge loans typically offer terms of up to three years, interest rates ranging from 6.5% to 9%, a processing timeline of 15 to 45 days, and a minimum credit score of 650.

Hard money loan

This financing option is ideal for investors looking to quickly finance the purchase of a property and potentially cover the costs of renovations. Property flippers frequently use this type of loan to get in and out of a property as quickly as possible to maximize profits. Speed is especially important when dealing with a hard money loan due to high interest rates that range from 10% to 18% and a short time frame of just six to 24 months.

Finally, hard money loans are quite accessible for beginners since they aren’t based on creditworthiness and instead take the value of the assets into account. 

Blanket loan

This financing option allows you to roll financing for multiple commercial properties into a single loan with a single interest rate and a single monthly payment. This type of loan is beneficial for investors with larger portfolios that allow you to save money on application, processing, and underwriting fees that can quickly add up when dealing with multiple properties. 

Construction Loan

This financing option allows you to finance the purchase of land that is then built up to become a functioning commercial property. For instance, you can buy a piece of land and use a construction loan to build an office park, strip mall, or condominium complex. With construction loans, however, come shorter terms compared to other commercial loan options. Most of the time, you will need to repay the loan within 36 months.

What to look for in a commercial lender

Not every lender is going to offer every type of commercial loan. As a result, you need to look for lenders that provide the specific loan type you’re looking for. The best place to look for lenders based on specific loan products is online. Conducting your search online provides you access to all the information you need to find the best possible commercial lender.

From there, you need to consider the interest rates and general terms offered by each lender to get the best possible rates. But before you sign on the dotted line, you also need to make sure that working with this lender will be a positive and worthwhile experience. Some lenders may seemingly offer low interest rates but will charge you additional closing costs, be unresponsive, or overall difficult to work with.

Instead of dealing with these issues, you need to look for a responsive lender that is ready to help answer all your questions completely and quickly. You also need to work with a lender that is upfront and straightforward about their terms and conditions. Finally, you need to work with a lender with a spotless reputation among its clients -- so don’t be afraid to ask for references. 

Different types of commercial properties to consider

To best take advantage of the hot commercial real estate market, you first need to know about the different commercial properties available for purchase. There are four different types that you should know and learn about:

• Office: Office spaces make up the most common type of commercial real estate. Office spaces range in size from a single office for a startup company to hundreds of thousands of square feet for a Fortune 500 company in a skyscraper. 
  
  
• Retail: Retail spaces include shops and restaurants that are designed for public use. Location is the most important factor to consider when buying retail property.
  
  
• Multifamily: Multifamily properties refer to residential properties with four or more separate units, including townhomes, apartment complexes, and condominium communities.
  
  
• Industrial: Industrial spaces refer to spaces that have been specially designated for industrial business operations, including warehouses, plants, and large research facilities. 

Benefits of investing in commercial property

To best convince people to buy commercial properties, you need to know about all the potential benefits of this investment opportunity. For starters, purchasing commercial properties is less competitive compared to residential properties since not all investors are able to swing the higher amounts of money that are needed to purchase commercial properties. So if you have the finances necessary to make a large investment, you should definitely invest that money into commercial real estate. 

Furthermore, commercial properties also boast longer lease terms and, as a result, offer more of a guaranteed cash flow than other types of investments. This combats a major issue encountered by residential properties that tend to only have year-long leases and higher vacancy rates as a result of more frequent turnover. 

Another downside of investing in residential property is that you have to deal with individuals that can be less than reliable or professional. On the other hand, with commercial investing, you’re usually dealing with businesses that are more established, reputable, and trustworthy than individuals. Commercial real estate investing also wins points for being able to establish relationships and potentially network with your tenants. 

While investing in commercial property is more costly than investing in residential, you also get more out of it. In fact, you can expect to earn between 6% and 12% on your commercial investments compared to just 1% to 4% on single-family residential properties. This makes commercial real estate one of the best investments that you can make with your financial assets. Pointing out the amazing return on investment to a potential buyer or even a lender is key to closing a deal. 

Finally, the last benefit of investing in commercial property is that there’s so much you can do with it. For instance, multi-family property investing looks a lot different than office space investing. With so much room to explore, you can find the areas that you’re interested in and excel in. When you’re actually interested in your job, you’re then more likely to experience success as a result of your dedication.

How to find commercial property buyers

While less competition in the commercial real estate space is good for buyers, it can present challenges for sellers and lenders. As a result, it can be difficult to find commercial property buyers ready and willing to take the plunge on a commercial property. However, with the right approach, you can identify potential commercial property buyers and work with them to locate the perfect property for their interests. 

Here are some different approaches you can use to find commercial property buyers:

• Find a niche: If you’re looking to sell commercial property as a business, you need to find your niche. For starters, you need to focus on a specific geographic area and learn the ins and outs of the neighborhood. From there, you need to focus on specific types of commercial properties. For example, are you going to specialize in industrial space or office space? Finally, you may even want to focus on a few different industries like tech, hospitality, or financial services.
  
  
• Use social media to your advantage: Once you’re getting into your niche, you need to get the word out there through social media. You should credit business accounts on social media platforms like Facebook and Twitter. You should also establish a LinkedIn presence to reach other professionals successfully.
  
  
• Don’t do it on your own: Getting your start in commercial real estate on your own can seem like an uphill battle. Fortunately, you don’t have to do it all on your own! You can partner with a seasoned professional if you’re learning the ropes and establishing a clientele.

• Reach out to businesses directly: Depending on your chosen niche, reaching out to companies about properties may be a good strategy. Many businesses are low-key looking to expand, relocate, or consolidate -- but you’ll never know if you don’t reach out to headquarters.
  
  
• Post on commercial real estate databases: Finally, you can and should list commercial properties for sale on designated databases. For instance, everyone uses Zillow and Redfin for residential real estate. On the commercial side, there are databases like Reonomy, LoopNet, and Crexi. 

How to Close the Deal With Commercial Property Buyers

Finding a potential buyer for a commercial property is easy compared to actually closing the deal. While figuring out what you need to do to close big commercial deals requires time and experience, here are some tips to help you close your first deal and hopefully many more in the future: 

• Despite what you may think, not every lead is worth pursuing. Instead, you need to carefully screen your leads before you invest your time into finding them the perfect commercial property. Before you begin working with a potential client, you should conduct a screening interview to make sure that they are serious about buying a commercial property. This interview will help you determine who is worth investing your time and effort into. 
  
  
• Once you have found a serious client, you then need to determine their budget, timeline, and wishlist. This step is especially important since commercial real estate is so diverse in its offerings. Working with a client that’s looking for a smaller investment in a multiplex will look a lot different than working with a client that’s looking for a larger investment in an office park. When you’re able to find a niche within a specific area of commercial real estate, catering to the wants and needs of your clients is a lot easier. 
  
  
• After you have found the perfect commercial property for your buyer, you now need to actually close the deal. This will likely involve a lot of finessing. For starters, you need to create a sense of urgency with the buyer without pressuring them too much. Furthermore, you need to negotiate with the seller to help your buyer get the best possible deal. A lot of these soft skills can be developed with a lot of practice. 

What Is the Closing Process for Commercial Properties

Unfortunately, the deal isn’t finalized just because the buyer and the seller have reached an initial agreement. Instead, you need to go through the closing process to actually finalize the sale of the commercial property. Here are the different steps in the closing process that you need to know about: 

Loan Underwriting

If a loan is being used to finance the purchase of the commercial property, as is common with high-value commercial real estate transactions, then you have to go through the loan underwriting process. This process is required even if a loan pre-approval has been received. 

During the underwriting process, the lender essentially verifies all of the information presented within the initial application to evaluate the risk involved in granting the commercial loan. Specifically, lenders will typically look at things like credit score, debt-to-income (DTI) ratio, cash flow, net operating income (NOI), loan to value ratio (LTV), and debt service coverage (DSCR). 

In order to make these calculations and verifications, the lender will request a whole host of documentation. While specific requirements vary depending on the lender, generally speaking, lenders will want to see official income statements, pay stubs, federal tax returns, recent account statements, and information regarding other long-term debts like auto loans, other real estate loans, student loans, and credit cards. 

All of these calculations are used to determine the maximum loan amount that the borrower is eligible for. In most cases, the loan underwriting process for commercial real estate transactions takes about a week but can take longer if any issues come up during the process. 

Title Search

The next component in the closing process for commercial real estate is the title search. Similar to residential real estate, a title search is performed to ensure that the seller is actually qualified to sell the property. The title also contains information relevant to the property, for instance unknown liens, illegal deeds, undiscovered encumbrances, public record errors, unclear boundaries, forgeries, and fraud. 

With a list this long, many commercial property buyers opt to purchase title insurance. This protects them in the event that the title search company doesn’t find an issue with a title that can pop up and cause problems down the line. While this is an extra cost, it’s well worth it for the peace of mind it provides — especially when it involves a highly valuable piece of commercial property. 

Survey, Inspection, and Appraisal

Before buying a commercial property, you will generally want to conduct a land survey, building inspection, and property appraisal before moving forward. In fact, some lenders actually require these components in order to approve and close on your loan.

A property survey involves describing and mapping the boundaries of a piece of land. This process helps you make sure that you’re actually buying what you think you’re buying based on the legal boundaries of the property. 

A property inspection involves examining the current condition, structure, and safety of the commercial building. This process helps you make sure that everything is up to code and there aren’t any hidden issues that could end up costing you down the line to repair. 

A property appraisal involves determining the actual value of a property based on similar properties that were recently sold. This process helps you ensure that you’re not paying more for a property than it’s actually worth and is often required by lenders as a part of the closing process. 

Even if surveys, inspections, and appraisals aren’t technically required as a part of your commercial real estate transaction, they are always recommended to ensure that you’re getting a good deal. 

Escrow

The last component in the closing process for a commercial property relates to escrow. Escrow is also involved in the residential closing process but is even more important for commercial real estate dealings. This is because escrow essentially protects money in a separate account that is held there until all parties in the contract have met their obligations and conditions. 

Since commercial real estate often deals with larger amounts of money, it’s vital to protect these funds during the closing process. Before any funds go into escrow, both sides need to agree to the terms of escrow. These personalized agreements are then drawn up and signed before moving forward. 

Final rundown on buying and selling commercial property

Buying and selling commercial property is a venture that involves a lot of risks and a lot of rewards. While it’s not for everyone, with the right training, expertise, and research, you can take advantage of commercial property investment. 

If you’re looking for a reputable bridge loan provider, look no further than Vaster Capital. Vaster Capital prioritizes transparency, support, and reliability while financing some of South Florida’s most impressive commercial real estate deals. 

Sources:

1. Commercial Loans: What Are The Different Types? | Business.org
2. Understanding the 8 Types of Commercial Real Estate | Reonomy.com
3. How to Find Commercial Property Buyers | Crexi.com