Tips on Pre-Screening Commercial Property

TRANSCRIPTION

Hey, this is Terry Hale,
commercial real estate trainer.
I want to give you a few tips on
prescreening commercial property.
This goes for all property types,
regardless of the one
that you’re interested in.
These tactics and strategies I’ve been
using for close to two decades.
First thing I wanna teach you here
is the capitalization rate formula.
It’s important because if you
buy too low of a cap rate,
you’re gonna be paying retail,
or you’re gonna be buying into what
I refer to as hope or speculation,
or the projection of future value,
meaning you’re gonna have to
wait a long time to make money.
If you wanna make money right away,
you wanna make money now, then you need to
be able to structure
the deal, and the terms,
and buy the property for the right price.
So here it is.
This is the cap rate formula.
You got your gross income,
that’s everything that the property makes.
You got your itemized expenses.
And then you end up with your net.
That’s your net operating income.
You take the NOI, you divide
it by the purchase price.
It equals either a single
or double digit number.
That’s referred to as
your capitalization rate.
That’s the “cap rate”, alright?
So we’re buying on a 10 cap formula.
10 cap formula, if the properties
pulling in $53,000 NOI,
you just add zeros.
It’s worth $530,000 on its end cap.
It pulls in $68,000 NOI,
it’s worth $680,000.
So forth, and so on.
See the simplistic nature to
this type of prescreening metric?
I’ve been using it for a long time,
building wealth for my clients.
Building financial security
for you and your family.
That’s what it’s about, okay?
A couple of other key identifiers.
We’re looking for, low
occupancy, a high vacancy.
The boxes are already built,
you don’t have to spend
money finishing ’em off,
doing rehab, doing additional
property expansion,
building anything. They’re already built.
All you do is fill the boxes.
Also, low rents.
When the rents haven’t
been raised in forever,
they’re not even at market
rents, we can do a nuisance rent,
for instance on self-storage,
couple hundred units across the board.
We raise it just five dollars each,
the NOI goes up tremendously.
You make money right away.
And that’s what it’s about,
making money right away.
So I hope you enjoyed this
little pre-screening video
and if you dig it, cool, look below.
Look for the link, click it.
I look forward to engaging
with you some more.
All right?
Take care and we’ll talk real soon.