What to Look for in Industrial Properties + Negotiation Strategies + Best and Worst Industrial Investments

Commercial Real Estate Investing From A-Z

What should you look for in an industrial property that you are looking at buying? What are some of the strategies to make deals a win win for the buyer as well as the seller? Darren Smith, Principal of Solid Growth Properties LLC will share his industrial investing insights.

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What do you look for in a property that you decide to buy?

I'm looking for a property that is in an area that I know that if it goes vacant, I can get it rented without a ton of trouble. And that be like what are my rates on the property? I need to know, how much is the lease on this property? Let's say I'm buying one that already has a tenant in there, and rent is $8/sf plus NNN. If the market rate in that area is $7/sf plus NNN, I'm a little bit nervous, because if that tenant doesn't renew in a couple years, if I paid full price for it, I'm paying above market rates because the market doesn't bear that. But if I'm getting $8/sf plus NNN, but market in that area can bare $10, I'm really comfortable with that.

What strategies that you use to make some of these deals a win win?

There are so many creative ways of putting deals together, you have to go into the conversation with an open mind with letting the seller know you're there to figure out the best solution for them. I'll tell you a funny thing that happened in the last couple of weeks. My assistant mailed out several months worth of marketing for me on the same day, and I have had more seller conversations in the past couple of weeks than the rest of the year combined. What that has given me is this, it has helped me with my skills of talking with sellers. I've been doing it for years, but you can always improve. Two, I find the things that I keep saying over and over to different sellers. One of the things I keep saying is, Hey, you know what, I may not be the best fit to buy your property, to be honest, I buy a lot of properties, but I definitely don't buy everyone. If you can just let me ask you a couple of questions about the property, to understand that situation and then about your situation, what you're trying to accomplish, what are you hoping to get out of the sale?

What has been your best and worst industrial investment so far and why?

I'll start with my worst one on a flip that I tried, I'm actually still involved with this, we're at a liquidation stage right now, I'm not sure how much I'm going to lose on this but it's probably going to be a six figure number. I didn't do any homework on this one. It was a flip that I bought sight unseen. It's across the country, I've never been to that town, I was doing as a favor for a friend because he got involved with it. I sent my one of my employees over and he said, Oh yes, we can do this, we can make it happen.

As far as my best deal, the seller of this property had been trying to sell this property for a couple of years, he was getting close to the the end of the lease with the Army Corps of Engineers. It was a government tenant that was in the building, it was in an area that's a bit more remote. He'd been trying to sell this property and couldn't do it, it was listed with a broker. I sat down and talked to him. I said, what exactly is it that you need? What are you trying to accomplish? And he said, this is the number I absolutely have to have, and I have to have that because of these things. I said, Okay, great, we can do that. How much of that do you need in cash at closing, he told me the number, it was less than 70% of what the sale price was. We were able to work out a deal where I got a 70% bank loan on that property, it took about 15 different banks, but he held a 30% second on that property.

Darren Smith

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