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Tips for buying commercial real estate

| May 4, 2020 | Real Estate |

Many find commercial real estate to be an excellent investment opportunity. It can diversify an investment portfolio because it’s not tied to the peaks and valleys of the stock market. Also, unlike residential real estate opportunities, the contracts tend to be long term and involve much larger parcels of space than the average apartment. Conversely, there are certain risks unique to the format as well, such as tenants going out of business, long gaps between occupancy and swings in demand perhaps related to the location and building design.

Commercial real estate experts each have their ideas of recognizing an excellent real estate opportunity, but every smart investor is trying to make fact-based business decisions. Research is critical, but it is also crucial to work with a reliable real estate agent with experience in the market when shopping for a property.

6 Tips for making the process go smoothly

Each real estate deal is different, but these are some common issues to address:

  1. Identify your desired type of property: Determine whether you want a property for offices, a retailer, residential use, or even a mixed-use property. Due diligence would involve determining where the greatest need lies.
  2. Identify the requirements for owning the property: Industrial properties often require a certain level of environmental liability, which can be analyzed using a preliminary assessment, a Phase 1 Environmental Assessment or a Phase 2 Environmental Assessment.
  3. Consider the financial risks: Set aside emotional attachment and look at the potential upside and downside to purchasing the property. Do this using comparable properties in the area. It is also wise to review the property’s profits and losses ledger, tax obligations, utility statements, and maintenance history.
  4. Hire a structural engineer: These experts analyze the general health of the structure and help identify any structural issues that need addressing before purchase or simply avoided at all costs.
  5. Do due diligence for title and permits: This helps ensure that the closing goes smoothly, and the property can accommodate a buyer’s specific business goals.
  6. Line-up financing: As with buying a house, it is better to identify different likely sources of funding ahead of time to understand your budget or avoid last minute deals that are less than ideal. It also enables you to move faster when competing against other potential buyers.

Attorneys can prevent costly mistakes

It is wise to consult with a knowledgeable real estate attorney. These legal professionals can draft contracts that are legally binding, equitable and protect against the foreseeable risk that can be easily identified and avoided.