Suppose you see a swank office building in a big city with an atrium and you say to yourself, this would be great in your town. You want to venture into commercial real estate because you know how lucrative it can be. So, you call the broker on that nice piece of land in your town and find out what the asking price is, followed by a gulp and Really? The broker might ask what you intend to do with it. Tell them you would like to like to hold the land for a while. Why be so sneaky? The broker needs to unload the land and your idea can give the broker more angles to market the land. However, be courteous to the broker because they need to give you the Assessors Parcel Number (APN) and the zoning designation of that land. You cant build offices in a residential zoned area.
Okay, next you need to search on the city planning website or go to the city planning office and find out what the building height restrictions and ratios of building space to land are allowed. If you want buy an acre parcel of land and the code says you can only develop 50% of it, you building cant be bigger than 21,780 square feet. You want an idea of how big of a building you can build because contractors can estimate costs based on how many square feet the building type is. You dont want to bet on the city allowing you a conditional use permit to get around their laws because it takes months to get, if you can get it at all. Next, ask around the local Chamber of Commerce for the most respected contractors in your area and drop off some cookies for the staff with your card. Call them the next day and ask for a moment of their time and ask how much a building of your desired size and with the frills will cost maybe how much architect fees might run. They will give a ball park answer. Be sure to give them a general answer as to the location, until of course you own the land. Good real estate ideas seem to spread through the grapevine with lightning speed.
Now, you take all this information and determine the cost to build by adding up the cost of the land, construction, plans, and tack on several hundred thousand dollars in city fees. Again, you can get a lot of general information by being nice to the people who know what they are doing. Now you have an idea of what it costs to build your office building. You look around the area to see what the going office rates are and see if you get your desired return on investment.
This may seem like a lot of work and that you would prefer to give brokers much of the work. First do your own homework, then you may get a broker to help put an offer in and verify all the information you researched, check environmental reports, surveyor maps, follow up on title reports, etc. The reason is that you only have finite amount of time during your escrow period before your deposit becomes non-refundable so you want to move fast. Your diligence on the first project will allow you to be more intuitive in the future and know how to really drive your brokers to give you the answers you need faster.
The key is to keep your idea to yourself as much as possible until you own the land. Many real estate deals get swooped because someone came up with cash quicker and made an offer because they could pencil out the deal fast enough to know it made sense.
Lastly, any partners you bring in must understand this solemn oath of keeping quiet and being willing to share tax returns and bank statements to prove they have the money when its time. Unless, you have millions in the bank to build this office, youll need commercial financing and lenders will ask for it anyway. You dont want to lose a deposit because your partner decided to pull out last minute so a written agreement of confidentiality and agency to each other is advisable, even if its your own blood relative.
Ameet Chagan is a licensed commercial real estate broker with first hand experience in owning income producing assets. He specializes in helping motivated entrepreneurs get commercial loans for their real estate acquisitions.
His website is http://www.lionheartfinance.com
You are welcome to share this article, unedited, in its entirety with anyone. You may not remove this text. 2007 Lionheart Commercial Finance & Real Estate
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