5-Point Checklist for Buying Commercial Real Estate

Investing in commercial properties, such as office buildings, retail stores, or multifamily housing, can be profitable, but you need to be comfortable with the risks and think long-term. Simply put, it’s a viable path for entrepreneurs and investors. Acquiring commercial real estate requires more capital upfront, and you can expect other expenditures to follow, so it’s recommended to think long and hard about your decision. Without proper planning, you face a myriad of problems. If you’re willing to do the work and can raise the down payment, the potential rewards can be great – substantial profit, low market competition, and tax benefits. 

If you have your mind set on commercial real estate acquisition, please continue reading to discover our checklist. 

1. Figure Out What Motivates You to Invest Money 

Investment goals generate accountability, so they force you to review progress periodically and stay self-disciplined. Ask yourself what you want. There’s no point in investing in commercial real estate if you have no idea whatsoever what you want to accomplish, so take a second to look at your money matters. Figure out what you’re trying to achieve and find an investment that helps you achieve that goal. Perhaps you want to hedge against inflation, in which case investing in a commercial asset makes sense because property tends to appreciate in value proportionately with inflation. Or maybe you want to find a good deal on a property, place it under contract, and flip that contract for a profit. 

2. Surround Yourself with Local Real Estate Experts 

Assemble a team of experts that know the ins and outs of commercial real estate, an area outside your expertise. Rather than going at it alone, you should better hire an estate agent because they have an extensive database of ready sellers that you don’t have access to. Tempting as it may be to access the listings in your target area and deal directly with the landlord, it’s best to work with a specialist. First comes the real estate agent and then the property manager. You invest in property via a company with limited status, so the owner-property manager relationship is more professional and courteous. It’s your livelihood, but you can take a hands-off approach with your property. 

Success involves running the investment like a business, so talk to an accountant about what you can afford, how you can navigate the tax benefits, and estimate future revenue and expenses. Also, ask the finance professional what you can do to pay off the principal of the loan as quickly as possible; they’ll give you all the information you need from the very get-go, but be prepared with questions. Last but not least, you’ll need a solicitor if you want to make the process easier on yourself – they’ll protect your rights and your investment. Try to find a solicitor whose experience matches what your project is. If money isn’t an issue, look around for a law firm with various specialists.  

3. Lock Down Your Financing 

It’s a good idea to secure financing before you start searching for real property so that you can close the deal faster (with the money in hand). Banks and independent lenders offer loans that range from five years to 20 years, with a higher amortisation period. These types of loans involve more scrutiny because businesses are regarded as risky and unreliable, so the lender will want to take a peek at your books to see if you have the necessary cash flow to repay the money borrowed. It’s not uncommon to use more than one source of financing, so consider hard money lending, but only as a last resort. The lender will approve the loan based on the value of the property purchased, and you’ll get your money in a matter of days.  

4. Conduct Thorough Research on The Investment Opportunity 

With the right amount of due diligence, purchasing a commercial asset can be a wise investment. Learn everything there is to know about the investment property to better understand its value and gauge potential growth. If you’re buying the property with the intention of letting it out, it makes sense to look at vacancy rates and rental yields to know if the demand for property is greater than the supply. You can find the information you need online, but it’s advisable to approach the data carefully. While there’s no denying the fact that past data is important, don’t neglect what the trends and forecasts are saying because they’re highly interconnected. Count on your team of experts when making a decision. 

Municipalities make available data about properties’ physical histories, so it’s not necessary to take a trip to the local government administration building to find out what you want, even if it can yield results. Knowing when a permit was issued will help you establish the seller’s honesty if that issue comes up during the negotiation. Take into account the demographic of the area when investing. More exactly, if there’s a high number of individuals in their twenties or thirties, that means the neighbourhood is improving; if more businesses follow, the area will begin to boom. It might not be a foolproof method, but it’s certainly a good indicator. 

5. Make An Offer and Close the Deal 

Once you’ve found land or a building, or both, it’s time to make an offer. Prior to approaching the seller, decide how much to offer, what contingencies you want if the property doesn’t pass inspection, and how much you’ll deposit. Your solicitor should be in place so they can give the estate agent the details at the same time you’re submitting the offer. There’s a lot that goes into a commercial real estate transaction, so you must be prepared. If everything looks alright, ensure you’re not held liable for any loss or damage by getting insurance and reviewing all the documents included. 

In conclusion, to get the most out of your investment, your commercial asset must be relevant. Despite the economic activity in the area, property fundamentals don’t change, so understand the different forces that influence your investment.