“Commercial real estate takes a while to move.” Seasoned and newly initiated investors alike have heard this statement over and over like a mantra; commercial investment takes patience and countless hours of review before things start to roll. Of course, there’s wisdom in waiting to gauge how the market fluctuates and taking the time to be thorough in due diligence before pulling the metaphorical trigger of a deal. However, there’s a fine line dividing adequate investigation and fearful hesitation in commercial transactions. Unfortunately, too often the latter of the two is the motivating force for delays in an investor taking action—and too often, the consequence is money and opportunity lost.
A Hypothetical Situation
Let’s consider a hypothetical scenario that isn’t all-too-hypothetical in the commercial world. We’ll call our hypothetical investor Jeffrey. Jeffrey is considering listing the multi-family unit he purchased 20 years ago. Jeffrey gets daily calls from real estate professionals eager to list his property, as they are watching the market and the trends are clearly in his favor at the time being. Jeffrey, however, finds these calls obnoxious and thinks that the property could sell for more than what the agents suggest. He decides to wait, fearful of losing potential appreciation.
Jeffrey waits several months. As time goes by, the daily calls lessen, and the agents he speaks with become less enthusiastic about how much he could sell his property for. Panic begins to set in, and Jeffrey decides he needs to list right away for a much higher amount than he’s been counseled. In fact, Jeffrey decides to bypass any agent representation, as he finds the agent’s fee to be an unnecessary expense. Over the weeks that follow, the offers he receives are less than desirable, and Jeffrey feels a bit offended by the numbers being offered. About a month or so after listing, one offer comes in that’s a bit higher than the usual offers, but still below Jeffrey’s asking price. Jeffrey decides to reject the offer. He decides to wait a bit more, fearful of not selling for the highest price possible.
After a few months without selling, Jeffrey decides that if he waits any longer the offers may stop coming altogether. He decides to sell to the next offer that comes in, which ends up not being too much lower than the offers that he had received over the past couple of months. Jeffrey then decides that he may want to utilize the 1031 exchange tax code to defer some of the taxes on the property and also buy a new investment property. He isn’t sure what he wants, but he figures it will work itself out. He’s fearful that if he chooses something too hastily, he may miss out on something he would really like to own later on. His closing day comes and goes, and then Jeffrey decides he should start to figure out his 1031. On a brief call with a 1031 intermediary, he finds that he is no longer eligible as he needed to plan his 1031 prior to his closing and that he had to choose his new property within a specified time frame. Now thoroughly put out, Jeffrey grumbles that he would have felt quite fearful to be under that kind of time-crunch anyway and resigns himself to paying the taxes on his property sale.
There are many investors who have found themselves in one or more of the scenarios that Jeffrey had to live through. In many cases, a lot of what Jeffrey felt made sense! Frequent calls from real estate agents can become irritating. Selling for less than what seems fair causes second thoughts. Pressure to act right away is nerve-wracking, and the dreaded ‘what-ifs’ pile up as time goes on. But then what is to be done? How can all of these fears be silenced, and the best choice be made at the right time?
5 Things To Remember
As a commercial real estate agent and investment property consultant, I’ve come to a number of conclusions that I believe are indispensable for investors to consider when starting the selling process. I’ve compiled these thoughts into 5 simple steps:
1. Get a good agent
I know agent calls can be annoying and tedious, and it may feel like another fee is an expense that can’t be afforded. However, real estate agents are trained professionals that know what they’re doing (the good ones, at least). They know the rules, they are watching and analyzing the market, they have connections to the best deals, and they want to grow their business—so they want to do their job in the best way possible. There are several nuances to real estate transactions, and a good agent is worth their weight in gold. Therefore, before selling investment property, do your research and get a good, moral, knowledgeable agent. You will not regret it and it will take a lot of fear out of the equation from the start.
2. Trust your agent
Perhaps this goes without saying, but once you’ve chosen a good agent, trust their knowledge and instincts. They are your fiduciary and they want you to love working with them, so they’ll work tirelessly to ensure everything goes the way you hope. Take their counsel seriously and don’t be afraid to ask questions along the way!
3. Be realistic yet proactive
When going into a sale, avoid an outlook of greed and fear of being cheated out of a good deal. You have an agent who’s going to bat for you now, after all. Be realistic and know that investments will always have a degree of risk. However, also be proactive in your approach. Ask your agent everything you want to know. Do research on what other properties of a similar type are selling for and then list for slightly above that average price. Be realistic yet proactive as you work through the selling process—and discuss all of what you find and feel with your agent!
4. Know what you want to do next
Before you sell your property, seriously consider what you want to do next. Do you want to own more investment property? If so, what kind of property would you like next? Do you want to cash out and go on a lavish vacation? That is a fair choice, but you need to know exactly what you want so you can implement strategies to ensure everything goes smoothly. Once you’ve decided, discuss it with your agent so that they can get all of your ducks in a row. They’ll make sure you get what you want (or as close to it as possible), but before they can do that, you need to know what you want to do next.
5. Strike while the iron’s hot
After taking these steps, then comes the hardest part: making the decisions. However, since you’ve followed the steps, you don’t need to be fearful. You have a good agent who is working to make sure you’re educated on how to make the best decision. You’ve listed the right number at the right time. You have a clear vision of what you’ll do once you close on your sale. Once the offer comes in and your agent gives the thumbs-up, strike while the iron’s hot! Move it forward without any fear of what could have been, as there will always be ‘what-ifs’ – but you’ve done your homework, and you can trust that you did all you could.
Commercial real estate may take a long time to move, but often it is fear that causes the delay. An investor can be thorough but also dynamic in making decisions. By utilizing the outlined steps, an investor can avoid most if not all of the pitfalls that Jeffrey fell into. A quick fable by Aesop may be valuable food for thought as you move forward with your investment journey.
“An astronomer used to walk out every night to gaze upon the stars. It happened one night that, with his whole thoughts rapt up in the skies, he fell into a well. One who heard his cries ran up to him, and said: ‘While you are trying to pry into the mysteries of the sky, you overlook the common objects under your feet.’”
For more information about how Millcreek Commercial can help with your investments, visit millcreekcommercial.com.