This was a great plan and could pay off tremendous dividends. Leverage allowed percentage returns into the 3 digit number ranges. Life was good.

Unfortunately things tend to change. Somewhere in the early 2000s prices started to escalate so much that our perfect investor with the perfect plan had trouble finding a property to buy that was priced in a distressed range whether it was distressed or not. So the investor started moving farther and farther from home base.

Suddenly Orange County investors started to find themselves in the middle of San Bernardino. Maybe even the High Desert or worse. Not only that but soon even these returns were in full retreat. Pretty soon the investment with all of it’s risks started paying off like a certificate of deposit. In other words, lousy.

Now the business plan needed to change. Now the cowboy investor had to start figuring that he would need to live with this investment for awhile. Maybe even 5 years. If that was the case, property management became more and more important. Operations were where the money was going to be made.

Admittedly this was pretty tame stuff. Returns could be better than certificate of deposits but they were not going to be like hitting the slot machine bonanaza either.

Today the investor may need to plan on a 6 or 7 year hold and he probably needs to pay attention to tenant retention and deferred maintenance. He needs to become a property manager or hire a good one to keep the cash flow coming and eventually to make that big pop on sale that came so frequently in the good old days. 

In today’s world blind luck has been replaced, once again with good management.  True, blind luck is much more fun to talk about at cocktail parties, but usually management triumphs.  This marketplace has driven us back to the mundane.

Can you imagine how well you could have done if you bought just a small fraction of the commercial real estate that you looked at since the year 2000? You might be too busy enjoying your yacht in the south of France right now to read this article if you had.

Just what is a bargain when you are dealing with commercial real estate? Is it 10%, 20% or 100% below the average price for a similar property? Probably any one of those numbers would constitute a true bargain. However, how probable is it that one can actually buy the property significantly below market price?

I submit that it is not very probable. In fact most people that have doubled, tripled, quadrupled or increased their net worth even more than that may well have paid market price for their property. The money is made on buying smart and projecting income prudently. It does not need to be made on “stealing” property.

Buying or selling prudently in a down or up market is key for investing into commercial real estate. Otherwise, if you are waiting to take action for just the optimum conditions you may grow old waiting to do it. You will also miss a great many opportunities along the way.

More about opportunities another day.

Let me know what you think about buying commercial real estate.