Commercial real estate is at the top of many investors’ wish lists, and for good reason: it has proven to be a lucrative endeavor time and time again. However, if you want to buy commercial property it is important to understand that increased reward can also mean increased responsibility. That’s why it is crucial to mind your due diligence and follow sound practices.
As you might expect, commercial properties are a departure from traditional single-family investments. From crunching numbers to raising capital, buying commercial real estate will require more out of an investor. That said, with the right dedication you can learn how to take on more complex properties.
The following guide we’ve provided for you will walk you through how to buy commercial real estate and help you get started today.
How To Buy Commercial Real Estate
- Identify your motivations for investing
- Evaluate different commercial property types
- Lock down your financing
- Build the right team for the job
- Identify a potential property in your market
- Run the numbers on the property
- Make an offer and close the deal
Buying commercial real estate can be thought of similarly to purchasing traditional real estate, but on a bigger scale. Investors will still need to conduct sufficient research and mind due diligence; but there will be differences in the numbers. Commercial properties often equate to higher purchase prices, longer leases, and increased rental income. To prepare for these differences, investors should ensure they have the right systems in place. Not surprisingly, as you gain experience you will become more comfortable analyzing properties and landing deals.
If you want to start purchasing commercial real estate, or you simply want a better idea of what to expect, consider the most important steps in the commercial real estate buying process:
Ask Yourself Why You Are Investing
Before you can even consider buying commercial real estate, you need to ask yourself why you are doing so in the first place. There is no point in investing in a commercial asset if you don’t know what you hope to accomplish. Instead of investing first and determining what you want later, try identifying your “why” first. Determine what you want to accomplish, and then search for an investment that can help you achieve that goal.
Consider Your Investing Options
Commercial real estate is a broad term, and can include everything from retail shops, industrial complexes, office buildings, large apartment buildings and a whole slew of other types of commercial real estate. In other words, commercial real estate is property used for business purposes. It is, therefore, in your best interest to determine which type of commercial real estate you want to deal in. To help you with your decision, remember why you are investing in the first place.
Secure Financing
Try to secure financing before you even start looking for a commercial real estate property to buy. That way, you’ll not only know how much you can afford, but you will be able to facilitate a deal faster and more efficiently with the money “in hand.”
Align Yourself with the Right People
Real estate is a people business, and buying commercial real estate is no exception. You will want to make sure you align your services with the right professionals. Consider hiring a commercial real estate agent that specializes in the types of transactions you hope to complete, a commercial real estate attorney well-versed in the laws of commercial real estate, and even a CPA to make sure the deal goes according to plan. There are a number of professionals that can help, so don’t be afraid to ask for assistance. The right partners may be the key to landing the deal of your dreams.
Find A Property That Meets Your Criteria
With everything in place, begin your search. By now you should know your criteria; stick to it. Remember why you are buying commercial real estate, and look for a property that can get you to the finish line. Remember, there’s no reason in buying a property that doesn’t help you realize your goal, no matter how good of a deal it may seem on the surface.
Mind Due Diligence
Again, buying commercial real estate isn’t the same as buying a single-family home. Before you proceed, mind due diligence. Run the numbers and analyze the deal as a whole. Are the inherent risks worth the potential rewards? Is there another property that would be better suited towards your goals? Now is the time to analyze every detail. Only move forward once you are certain the property will be beneficial to your portfolio.
Close the Deal
Once you find a property worth pursuing, be sure to make an offer with a contingency clause. More specifically, make an offer with an inspection contingency that gives you an out in the event the commercial property doesn’t pass the inspection. If everything looks good, continue to mind due diligence by getting the appropriate insurance set up and reviewing all included documents. There’s a lot that goes into a commercial real estate transaction, so make sure you are prepared.
Note: this is by no means a comprehensive list of every step associated with buying commercial real estate. It is, however, representative of some of the most important steps you should always remember. Consult with a professional before moving forward with your own commercial real estate purchase.
