Questions on how commercial differs from residential.

[Leslie L.]

Hi everyone,

I have a good understanding of how residential RE works and how to go about purchasing but I would really like to know more about commercial.

I know with residential when you are working with an agent, you have to be pre-approved and basically have the proof of funds in place before you can even make an offer.

With commercial however, do you have to have the proof of funds up front when you make an offer? For example, say I look at a 20 unit multifamily property. I like the property and the numbers look great. I make an offer on the property and it is accepted by the seller. Along with this offer I give them the earnest money deposit. My goal in financing the property would be to bring in a private investor to put up all of the down payment and then get a traditional commercial mortgage for the rest of the purchase price.

Is this how purchasing commercial property can work? Can you put a property under contract without the funding lined up right away with the intent of bringing in a private investor to fund the down payment? In essence with the earnest money check, wouldn't that show that I am committed to the deal because if I couldn't line up my own funding before closing, I would lose that money.

Just in my thinking it would be easier to attract private investors to a commercial deal if you already have it under contract and can show them real numbers instead of pro-forma numbers based off of some hypothetical property that might not even exist.

Thanks BP!

[Bill Gulley]

In residential, you need to understand the leasehold interests of individuals, families, and thier ability to pay you for a dwelling. Pretty easy.

If you're say commercial as in a 6 unit apt building it's pretty much the same.

If you're talking about commercial as in offices, retail or other business enterprises, it's the same thing, as you need to understand the issues and risks of the business renting.

If you have no no business expierence, you don't know the difference between a retail operations and the risks of various businesses, you can not assess the ability of your tenant to pay the lease. Commercial is absolutlely not just a real estate matter, it's a business matter. If you can't understand how businesses operate, how they derive thier income to pay you, the risks involved with various business types and the legal matteres surrounding business operations, you have no business considering that type of commercial property. It's not, not for the beginner or even a seasoned RE owner if they lack business experience. No, a property manager can't save you, YOU need to understand your tenants, the liabilities involved, the risks and how to manage the asset.

The difference is bout the same as flying a Piper Cub, a single engine airplane an a Boing 747. If you are really qualified you can fly either. Thinking you can is a guranteed loss of money, if you have to ask, you're not qualified. :)