The #1 Thing You Need To Crush It in Commercial Real Estate In 2024

This week's listener of the week is Gucci Mane. Just kidding, but he just put out a great new album and I was just listening to it. And if you wanna be next week's listener of the week, leave us a five-star review below and you might be next week's listener of the week, week. Now, in July of 2022, something happened that changed the course of commercial real estate for years to come. And what happened was,

interest rates went up and this severely impacted the debt markets to the point where a lot of deals had to stop, right? If you are working on a development or a deal where the return is 6% and then all of a sudden your interest rate is 7%, you're losing money. And that's not why we work hard. We work hard to make money. So

July of 2022 is when the interest rates went up so far that it toppled the debt market. Then there's also been a ton of issues thereafter with banking. As a result, banks are being really, really conservative in their lending on properties right now. If you go to your downtown, you look at a beautiful big old office building, there is a very high percent chance you could not get a bank to give you money for that building.

Four years ago, it was a completely different world. So a lot of people are thinking right now, well, banks are too scared to finance, so I can't buy deals, right? And as a result, a lot of buyers are leaving the picture entirely. And the folks who are sitting on the sidelines waiting for the right deals to come are the ones who are going to win. Why? Because...

there is something in their back pocket. And what that is, is seller financing. So you're like, what's seller financing? Well, seller financing is when the seller of a property plays bank instead of a banker. And this is a scenario that can be really, really beneficial to the buyer and the seller. And what we're seeing in 2023 and 2024,

Aviva Sonenreich (02:23.594)

right now is that this is probably the best time in your life to do seller financing. And it's becoming really, really opportunistic because people don't understand that it's an option. And as a result, the buyer pool is lower, but there's still properties that need to be sold and bought. And that's when the creative buyers are stepping in, right? I talk about this all the time.

Aviva Sonenreich (02:53.702)

If you just do, you know, if you are not willing to be creative to see a deal through, you will not get that deal done. And that's why we are seeing so many people leaving the industry and the sidelines altogether. Now, cue seller financing. And it's like, okay, well, what are the terms for seller financing? Great question. And then my answer is negotiable.

Right? Like we talk about, everything in commercial real estate is negotiable, and so are seller financing terms. So, high level. When a seller finances a property, one, the process for selling the property is way faster. Right? When you're dealing with a bank and you're jumping through all these loopholes, they want your first child.

your last child and then every paper you've ever put out in between, right? Dealing with banks or paying? One. Two, you can get a better return as a buyer if the seller is financing the property. Then the way that this helps the seller is that, say you're paying the seller 50% down or 10% down and then you're paying them

a sum of money over the next 10, 20 years, right? This becomes a tax advantage for the seller, right? If I'm getting paid $1 million in one year, then you have to pay Uncle Sam a mill, whatever percent that is, a third of your million. Whereas if you're getting paid $100,000 over the course of 10 years to get to that million, your tax implications are not as bad.

And then as the buyer, the buyer pulls so much less that you have a higher probability of getting the property. So this is a win-win for everybody. Now, I was doing a deal a couple months back and we wound up, essentially the bank would only give financing up to $2 million, but the purchase price was $2.2 million. So what we did was,

Aviva Sonenreich (05:17.898)

We took the bank up on their financing for the two million and then created a structure of seller financing for the additional 200,000. It was totally out of pocket. The deal would not have gone through had we not done that. But once we figured out this seller financing option, everybody was happy and everybody won. So the banks may be uncertain, but you don't have to. Now.

If you have any questions, DM me at Aviva Real Estate. And if you want to get started in commercial real estate, head down to my show notes for my free guide, How to Get Started in Commercial Real Estate. We'll see you next week.