Tools can only do so much...

[Ken D.]

I'm branching out into commercial real estate and running into a road block: running the numbers. Sure there are great tools available like the ones here on BP, but with any analytical tool:

garbage in = garbage out.

Most inputs are easy to figure out with some leg work on stabilized properties. I'm having a hard time in 2 areas:

-Maintenance and cap ex estimates. Moving these a few percent especially for larger purchases affect margins by quite a bit. I'm currently in the Pittsburgh market and looking at small to midsize multis and apt over retail using 7% for each. Most of my estimated expenses far surpass the 50% rule. I'm more at the 60-70% rule which seems overly conservative to me although many buildings are very old and need a lot of work.

-Rent estimates for retail space, especially vacant ones. I see price/sq ft used for larger retail and office space. Does this apply for smaller storefronts as well? What about other aspects such as desirability from location on the street, how appealing the entrance or display window is, restaurant vs office space, etc? Better yet, how do you work in renovation cost to fit a new tenant?

I expect I'll get better at this with experience, but I'm hoping to avoid any crippling mistakes (and also I suppose overly conservative criteria). Looking forward to the feedback and discussions.

[Joel Owens]

If you have millions to invest then a commercial broker can help along the way purchasing a property. I help my clients with things like that.

If you have a few hundred K only and want to buy a small value add type property directly for 500k etc. instead of investing with a sponsor then you likely will need to buy books and programs to learn on your own. Busy brokers tend to not have time to spend heavily on small properties that make them a smaller return.

There is a difference between transaction only and giving an investor heavy education on how to buy and evaluate etc.