The Ultimate Step By Step Guide To Buying Commercial Real Estate...

[00:00:00] This week's an this week's. Oh, I gotta put my earphones in. I literally don't know what these do.

This week's listener of the week is Anthony Mills. Anthony dm us your mailing address, and for all of those listening, if you leave us a five star review below, you might be next week's listener of the week. Now ask and you shall receive. I hear this question day in and day out, and the question is, what are the steps of buying commercial real estate?

And I wanna give you a a funny anecdote that's going to lay out exactly how commercial real estate has transacted When I was on my honeymoon, A couple months ago, [00:01:00] I closed a transaction that I had been working on for over two years, and at the same time, during the same honeymoon, I went under contract on what would play out ultimately as the, uh, easiest, most seamless deal of my life.

Similar location, similar product type, similar price structures. Obviously everything's got elements, uh, unique elements. However, these two deals couldn't have been more different. One deal went on and on and on for years was under contract, fell out of contract. Uh, was one of the more difficult deals of my entire career.

And then, uh, the second deal that I put under contract, like I said, [00:02:00] I think I negotiated two numbers and uh, uh, did nothing but smile until the finish line. Right? And the point of me telling you about these two transactions is that, It's really important to understand that every deal is different.

Everybody wants a 10 step guide to how to close a commercial real estate transaction or a real estate transaction in general. How The reality is that that doesn't exist. There is no playbook. I. To how a transaction should go, can go, is supposed to go. Because the funny thing that nobody tells you about commercial real estate is that it is a creative sport.[00:03:00] 

A lot of times there is significant creativity needed to get a deal through the finish line, and I, I, I hear it all the time, I just want to know how to do a deal step by step. And the response to that is that doesn't exist because you can never tell what's coming, what's not coming, right there, there, there are far too many variables in a commercial real estate transaction.

To be able to say, here are your 10 steps, Abbi, because then go close it, which is good and bad, right? That's why we do our research garner ex experience because this is not, uh, this is not putting money in slot machine, right? This is calculated. So the mistake that I hear people making, Is that [00:04:00] there's this expectation, a, B, C, D, in terms of how to get a deal done.

And like I said, the reality is that that's not possible. However, there are overarching guidelines to two major steps that you need to take to close a deal, which I will go into here shortly, but. I want you to understand that commercial real estate is a creative sport and that while there are guidelines and there are rules, and you always wanna be ethical, the reality is that anything could happen.

I had a, uh, seller or die one time, two days before closing, right? Who could have ever expected that? And, and the d and we had to navigate accordingly, right? There's too many variables when you're dealing with too many people [00:05:00] to have a one size fits all transaction. But in the event that there was a one size trans fits all transaction, this is what it would look like.

Step number one. You're gonna identify the property, right? You have decided what market you wanna operate in. You have decided the product type you want. You've maybe seen the property and you decide to yourself, I'm gonna take this one down, right? The, that's step one, identifying the property, and then step two would be submitting a letter of intent to ownership.

So, Generally you would have a broker do this for you. And a letter of intent, which we refer to on the street as an loi, are the preliminary negotiations in the deal. And my attorney taught me this and it, I, it seems to remain true. [00:06:00] Negotiations in the LOI will generally tell you how smooth a deal will go if an LOI goes quick.

Everybody agrees. Generally the transaction will, uh, it will follow suit. Whereas if you're getting to crazy, crazy negotiations and details within the loi, you can expect that later in the next step, which once the seller and the buyer have agreed to the terms of the loi, these are very high level terms.

They then moved to a purchase agreement. The purchase agreement is a legally binding contract that is also negotiated, right? A, a LOI is not legally binding. A purchase agreement is Negotiations can happen on both and will happen on both contracts, [00:07:00] however, Once the P s a purchase and sale agreement is signed, that is when you are officially under contract and when you're under contract.

That means the seller can no longer pull out of the transaction. They have committed to the sale, and the buyer now begins their due diligence period to decide whether or not they wanna buy the deal. Right now, due diligence periods. Closing periods. These are all negotiable timeframes. If you're obtaining a loan, uh, you have to stick within the timeframes that you need in order to secure a loan.

However, once you're under contract, the ball is now in the buyer's court to see whether or not they want the deal to go through. So, mazel top, we're under contract. What's next? The next thing is to [00:08:00] engage title. The title company is the intermediary between the buyer and the seller who holds the earnest money.

Right? Buyer says, I have skin in the game. Here's some money in good faith that I'll see this transaction through. Title takes it, right. They're a bi partial intermediary. And then the title's job, aside from holding the earnest money at the end of the day, is to pull title on the property and assure that the seller is selling a property they own.

And a buyer is buying the property owned by the seller, right? So title is there to ensure that this deal is within the confines of, uh, the law. When it comes to actually trading hands of the property, so now we're under contract. We got the earnest money to title. The title company has pulled title,[00:09:00] 

depending on how this property is being financed. Finance, you know, this is when, uh, immediately when you go under contract, you should, if not prior, engage a lender, right? Your lender's gonna wanna know a lot about you. You generally need to have all of this buttoned up ahead of time. But a lot of the times, lenders are waiting for that PSA, that signed purchase and sale agreement to begin securing the loan.

So now we're under contract. We've got title, we've got our lender working for us. It is our due diligence period, the most important period of them all. You're gonna do inspections, you're gonna look into zoning it, you're gonna talk to the neighbors. You're gonna do tenant estoppels. You're going to get my due diligence kit in the membership and fill it [00:10:00] out in its entirety to make sure that the numbers work and that you're not doing a dumb deal.

Due diligence is the most important part of buying a property. Ultimately, the money you spend in your inspections and due diligence is the cheapest money you're ever gonna spend because you're gonna spend 120 bucks for a sewer scope. But if that sewer is busted, that's $20,000. You've just saved yourself.

See? See where I'm getting at here? So we're in our due diligence, we're doing our inspections, we've got our lender working for us. A part of securing a loan are appraisals, environmentals, and the survey there. Those are like the big three when it comes to seeing a deal through with a lender. Because the reality is that if you are buying a property with a loan, really the bank owns it.

And so the [00:11:00] bank wants to make sure that they're not doing a dumb deal. Right? That's what an appraisal is for. Same goes for an environmental. You don't wanna buy a property with environmental issues, and a bank is not going to buy a property with environmental issues, therefore, they require an environmental inspection.

There are different types of environmental inspections, and your lender will tell you what they require, but I would say never, ever, ever buy a property without an environmental inspection. Last the survey. A survey is a document done by a surveyor that essentially says, legally these are the coordinates of this property, and oftentimes the title company will require a recent [00:12:00] survey.

To make sure that the correct property is being sold and that that property is owned by who we believe it to be owned by the sellers. So we're under contract. We did our due diligence. We had an attorney look over all of our paperwork because that's the way to maximize your protection. Wink wink. Please do that.

We've appraised properly. We've got a clean environmental, and we have our survey closing time. I'm sorry I won't sing anymore on this podcast, but now it's time to close. Get out your, uh, ballpoint pen and Id because you're gonna need it. Uh, closing used to be this thing where the buyer and the cellar would go and it.

Ideally they would get along, but, um, now, you know, you see a lot of electronic closings, et [00:13:00] cetera, and ultimately, once closing happens, all the paperwork signed, the title of the property transfers from one name to the next name, and voila, uh, the, the money has to go, go through as well, right? The money doesn't go through.

You got nothing. Yeah, but once the money, the wire is cleared, the check is cleared. You brought a cash, uh, an envelope full, a briefcase full of cash. Just kidding. Don't do that. Um, and all of the proper paperwork funds have exchanged hands. You've closed now, like I said, uh, the two deals that I did during my honeymoon, both.

For all intensive purposes followed these timelines, but there were so many wrenches every which way on one, right? Appraisals and [00:14:00] environmentals and issues and in contract, outta contract. Whereas the second one, no appraisal. We did a survey, we did environmental. Right. So as much as I want to give you that step by step guide of how to do a deal, I would be doing you a disservice because no deal's the same, and just like people, every deal is unique.

So what questions can I answer for you? DM me at Aviva Real Estate. Any questions you have on this episode? Also, if you wanna get started in commercial real estate right now, head down to my show notes four, uh, my freebie, how to get started in commercial real estate. I just redid it. It's so dense. It's so good.

I'm really excited for everyone who has it. And last next week we are going to be discussing what are the actual types [00:15:00] of commercial real estate products. I'm looking forward to seeing you. Thanks for listening, and I'll see you next week.