Bidding Wars: Pros, Cons, and How to Improve Your Odds
Spend any amount of time in the commercial real estate arena and you’re bound to encounter a bidding war on a property you want. Maybe you see the inherent value of a commercial property and how much revenue it could generate. Maybe it’s a strategic purchase to improve your portfolio in light of other changes to the surrounding neighborhood. Whatever your reasons, bidding wars can be very stressful and should be handled delicately.
Bidding Wars Favor the Seller
For the most part, the property seller is the only one who benefits from a bidding war. Commercial real estate investors are willing to cut into their budgets in order to win a bidding war. The truth is, at some point in a bidding war, the competition becomes more about pride than it does fiscal strategy. Raising your offer leaves less money for renovations, which ultimately reduces profit margins. Most seasons pros will tell you that the best move in a bidding war is to walk away. There is no “holy grail” of commercial properties. Let someone else get soaked. With the current commercial real estate market, there are plenty of properties to be purchased, renovated, rented or flipped without taking a loss because of a bidding war. The minute another offer comes too close to your max budget, start looking elsewhere.
Sidestepping Bidding Wars
There are ways to reduce the escalation of bidding wars or prevent them entirely. Commercial real estate investors can pay most or all of the purchase price in cash. This may seem daunting, especially for investors who are just getting started, but it is not as impossible as it seems. Stated income loans, fix and flip loans, and other financing can be arranged quickly to provide commercial real estate investors with the capital necessary to make acquisitions without waiting on long processing times. Having the capital on hand to purchase properties makes a much bigger impression on sellers than bidding wars, which may see all buyers walk away from the deal.
At Approved Business Lending, we offer a wide range of commercial real estate solutions to cover property acquisitions and renovation costs. Contact our offices today to get started, and avoid getting trapped in a bidding war.