During my career I have witnessed commercial investors making the same mistakes over and over again.  They believe the old adage “LOCATION…LOCATION…LOCATION” is the way to economic prosperity in the real estate sector.  While location is important, it is farther down the list then you might imagine.

First….Examine the Credit of the Tenant.  Are they investment grade?  What is their business model?  Is it sustainable?  Credit is the underlying support mechanism for generating cash flow and insuring the loan is serviced.

Second…Review the Lease.This is the document that governs the operation of the property.  Careful review of all Landlord and Tenant obligations is paramount.  Who is responsible for capital repairs, such as roof, structure, parking lot and HVAC replacement?  Who is responsible for landscaping, common area maintenance, utilities?  Does the Tenant pay a management fee to the Landlord?  The list is extensive so READ! READ! READ!

Third…Pick you lender carefully.Low interest rates are great, but low rates don’t tell the whole story.  Who pays the bank’s attorney fees?  Is there an appraisal review fee?  Can you use shelf documents for the note, deed of trust and associated affidavits to minimize costs?  If the property is located out of state where the bank conducts its primary business, do you have to pay the out of state attorney fees?  These fees can increase the cost of the loan by thousands of dollars.

Fourth…Pick competent and value priced professionals.  You may need to contract for a survey, an environmental report, property condition assessment, or some other study.  Understand what is required and shop around.  How soon do you need the report?  Time and performance is critical.

Fifth….Pick the right Real Estate Broker  If you have the right real estate broker, much of the legal cost can be minimized.  A good broker can act as the quarterback of the transaction and work to minimize your legal costs.  A good attorney is important, but you want him/her to focus on the legal issues and not the brokerage issues.  The Broker is earning a fee to make sure you acquire the property and receive all the information you need to make a prudent and qualified decision.  Make him earn it!!

Hopefully, this list opens your eyes to smoothing out the process and getting a quality long term investment.

For additional questions, Call Arthur at (703) 864-2900 or email at Arthur.nachman@lnf.com.