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26.8% Cap Rate on His First Deal?? - Office Hours
Description
Key Takeaways:
Be very cautious of deals with extremely high cap rates (over 10%), as there are likely underlying issues with the property or tenant.
Thoroughly vet the seller and ensure they are the actual owner of the property before proceeding. Verify ownership through title work.
Conduct thorough due diligence, including a Phase 1 environmental study, to uncover any potential problems or liabilities.
Have a commercial real estate attorney review all lease and purchase documents carefully before moving forward.
Work with reputable title and escrow companies, not directly with the seller, to protect yourself from potential scams.
Ensure the tenant's financials and business model make sense for the high rent being paid, as it may not be sustainable.