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Search Where Others Aren't

Its been long established that markets are for the most part efficient. So the achieve outside returns you need to find properties that are improperly marketed, or that are off-market altogether. In the previous post we went through my smallest deal by dollar size, this deal is my second smallest.

From time to time I browse though listings on Zillow for small commercial properties listed by residential brokers. These brokers are often unaware of Costar, and lack the buyer base to effectively market these properties. On one of those searches, this 2,200 square foot commercial space showed up with an asking price of $120,000. With comparable properties on the block trading more than double that, it was not long before I had a signed cash deal at $110,000. Surprisingly, I found out that the property had been on the market for upwards of six months.

The closing went smoothly, and while hanging up the for rent sign, the store owner across the street begged me to take it down since he wanted to lease the property. Within two weeks, we had a signed lease. I settled for a lower rent, since the tenant wanted to gut renovated the building at his expense. We signed for 20 years.

While the work was ongoing, we filed a tax appeal and obtained a significant reduction on the basis of our low purchase price. While the work took longer than expected, the tenant started paying after 12 months as per our lease. After completion of the renovation, the property appraised at $285,000, I was able to refinance out $190,000.

Once again, this deal began with a poorly marketed property. You have to look where others are not. That can mean contacting owners directly, asking your contractors, attorneys and accountants about potential deals, speaking with agents, or whatever else it takes to find something special that others cannot find.

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