Concerns about the commercial investing space. Can anyone assist?

[Jairus King]

Good afternoon BP family!

I apologize in advance if this question seems rather “foolish”. I typically operate within the residential space and have a few rentals. I have turned down a few apartment scenarios because I am not educated in the commercial arena at the time. Thus, I have been looking into the apartment complex space and continue to educate myself in the event that opportunities continue to be brought to me.

Sooo In digging into a number of courses my concern is this with the larger 10+ apartments and high numbers 1 million and up. The steps initially appear pretty doable

1. Find the property
2. Run the numbers
3. Get the financing
4. Maintain the asset
5. Refi once stable

My concern is in the exit strategy. These commercial loans are typically short term and sometimes balloon payments. The closing cost and associated fees often add up in these transactions.

In the examples that I saw … Essentially there may be a mix of private/creative/bank money to get the asset initially. Which is basically valued on current and future growth.

Once you stabilize and raise the rents it would be the hope that the property would appraise for more and the owner would refi and get back significant returns. The trick….

If the owner performs that commercial refi…….. When the 5 years come up the property has been tapped so the next buyer certainly isn’t going to pay a premium to take the property on? I am currently seeing quite a few overpriced properties.

Does this make sense to all?

Soo in the class I am reviewing they are teaching us to undercut deals brought by brokers, but once we refi a property and pay off our partners wouldn’t we simply become the very targets that we were after 5 years ago?

We essentially are stuck with an overpriced, though performing property that we would need to keep refinancing every 5 years until we can get it off our plate. Am I looking at this correctly?