4 Things to Consider Before Buying a Commercial Property
No matter what type of commercial real estate (CRE) you purchase, it is likely one of the most exhilarating and risky business transactions you’ll ever make. Investing in business property involves long-term planning, market analysis, and careful consideration of any liabilities that come with it.
While factors like the price, location, and amenities are critical in your decision to buy or not, other elements can have a direct impact on your ROI later down the road. This is why conducting your due diligence before sealing the deal is essential to your plans for any property you purchase.
To help ensure you have thoroughly vetted your decision to invest in a new office building or CRE portfolio, keep the following four considerations in mind:
1. Current Property Condition and Use Vs. Your Plans
For many CRE investors, purchasing commercial space requires a forward-thinking approach to decision-making. You know that your new retail space will initially cost you hundreds of thousands, but you’re also focused on achieving a return on investment in the millions.
Keep sight of furnishing costs, renovations, taxes, financing fees, etc. You can’t overlook these legitimate expenses since your bottom line will feel the pinch. Outside of having the capital to buy and update a new property, you’ll need to find contractors to conduct these changes on your preferred timeline. For example, the parking lot of your new North Beach medical complex needs repaving before opening up for business. This means you’ll need to find a reputable commercial paving company in San Francisco, CA.
2. Dig Into Property History
Checking into a commercial property’s history is vital before ever completing its purchase. While it’s important to understand the overall condition and materials the building is constructed of, there are legal encumbrances you should look out for, as well. For example, if there are hidden liens, you need to be made aware of where the previous owner still owes on the loan and where the building you want is collateral.
Finding out that you’ll need to pay off an additional debt to own the property may be the tipping point where buying is no longer a good idea. Normally, a title insurance company or your commercial real estate attorney can handle this legwork. You can expect this process only to take about a month to complete once you and the seller have all the necessary documentation submitted for sale. If a defect or hidden encumbrance is found, then you can work together to figure out how to resolve it or walk away from the deal.
3. Property Safety
With a solid grasp of the property’s current condition and history, take notice of its safety features and lack thereof. For example, if you’re purchasing an older commercial space, don’t be surprised if it’s using an outdated alarm system or if the sprinklers need to be operational. In addition, you’ll need to assess how tenants and employees could exit the building in an emergency and if there are pinch points that could cause a delay for them to do so.
Assess the exterior grounds for any hazards, like potholes in the parking lot or uneven walkways due to tree roots. These are easily remedied issues but must be added to your running expense list when determining if it’s worth purchasing the property.
4. Determine Your Financing
It’s important to get the best deal possible from the seller and your potential lender. You might be eager to get the property under contract to avoid someone else buying it, but don’t accept the first loan offer you receive. You’re investing, so it’s important to consider every aspect of the deal, including financing, in its value.
Get several quotes and research the financial institutions providing you with possible financing. Some institutions offer special deals depending on the industry you’re going into, as does the government. Imagine the savings you could miss out on because you didn’t know about a grant you might qualify for.
Entrepreneurs and commercial investors put a lot on the line when acquiring new real estate, so one must take extra steps to ensure a profitable outcome. From assessing financial liabilities to understanding what it will take to make a new property fit its new purpose, CRE owners have a lot of considerations to make before signing the dotted line on a sales agreement.
Always do your homework and take a big-picture view of what your goals are and how an office building or strip mall can help you achieve them. Be prepared to conduct renovations, whether by hiring a paving company to pour new walks or having landscapers install new flower beds around the building’s parameters. Having a financial game plan with the help of Cincinnati commercial real estate companies, will ensure your venture provides you with a profitable resource for years to come.