As a newer agent in commercial real estate, how can you stand out from the more established agents that seem to have all the business?
The answer is: financial modeling. You might be thinking that financial modeling is for math geniuses and professors, but this is a common misconception. Having an understanding of the basics of real estate financial modeling can also get you a place at the table of some of the more sophisticated and successful financial investors around.
Here are some of the basic ideas to help you on your way to becoming an expert in financial modeling,
and to building better relationships with your clients. You will be able to help them to make better financial decisions by showing them the “numbers” behind their investment in real estate.
#1. Know the Financing Options
There are many ways to finance a commercial real estate property. While the easiest way to purchase a property is all-cash, most investors will elect to put debt on the property so they can diversify their investments. The lending standards may be changing in 2017, so it is best to be informed about changing lending rates and standards to be able to better advise your client on their investment.
#2. Be Able to Calculate a Cash Flow
This may sound basic, but many agents can’t talk in cash flow numbers with their clients. Being able to calculate a return for your clients investment of cash, whether in the down payment or entire purchase price, is one way to impress your client and earn their business. When an investor sees that they are working with an agent that knows how to calculate their rate of return, they are likely to be more excited about making offers on commercial property for sale.
#3. Know the Ratios
Real estate investments have a ratio of return that is the vocabulary that commercial real estate investors will expect to hear from their agent. Being able to use the needed formulas to calculate the ratios of return, and compare them to commonly targeted levels, is important information for a commercial real estate client to better assess the risk of the investment.
By earning your clients’ trust and respect through showing them your expertise in financial modeling, you are making the entire sales process easier. Your client will have fewer objections when it comes time to complete an application or sign an offer when they feel they have evaluated the investment in every possible way to satisfy their risk requirement. Knowledge of financial modeling in commercial real estate is essential to close deals with savvy investors and to grow your business by transitioning clients away from other less-informed agents.
Explore Financial Modeling
From free Excel tools to our renowned property valuation and investment analysis platform, at REFM we can help you stand out in a sea of real estate professionals with better financial modeling. Learn more by browsing our website and be sure to contact us with any questions you may have!