3 Essential Steps When Buying a Commercial Property
Commercial real estate is a proven and steady investment vehicle for those individuals who can properly appreciate the value in the properties they purchase. In addition to being a consistently strong investment, it’s a tangible property or “hard asset.”
When buying commercial real estate, it is imperative that you do your homework. By completing your due diligence, you can recognize the opportunity and value in the property before you purchase it. When purchased right, commercial real estate can be one of the most lucrative investments made. Follow these few tips and you’ll be able to confidently identify and purchase your desired property.
1. CONSIDER THE TYPE OF ASSET YOU ARE LOOKING TO ACQUIRE
With the extensive avenues available online, you can easily search for commercial property types such as retail, office, medical, multifamily, industrial, hotels and many more. It is in the buyer’s best interest to first identify a property or asset type to invest in. When starting your journey into commercial real estate, I would suggest gaining experience in one asset class and become familiar in that market place.
2. UNDERSTAND YOUR FINANCING OPTIONS
Once you’ve identified a property you would like to pursue, work with a lender or mortgage broker to understand what financing options are available. They will assist you in obtaining the loan amount you need and help you understand general terms of the loan such as interest rate, amortization, term, pre-payment and bank fees. This will provide you a better understanding of what your total equity requirement will be in order to purchase your property, as well as calculating your monthly mortgage payments so you can determine your return on investment
3. WORK WITH THE RIGHT PEOPLE
Once you have a handle on the property’s value and financing options, you should make sure you have a team of experts in place to help you navigate through the next few steps to complete the real estate purchase process.
• Real Estate Attorney – needed to draft a purchase contract and help in negotiating important timelines within the contract, such as your due diligence time frame and your closing period. They will also assist with any entitlements or zoning issues you may face throughout the process. Your attorney will also be needed to review and negotiate the loan documents.
• Accountant – will provide your tax returns, personal financial statements and other credit information required to complete the loan process.
• Mortgage Broker – provides a valuable service in evaluating the property to confirm it is financeable and to efficiently and effectively manage the entire commercial real estate loan process. There is no match for using a mortgage professional to help secure financing, handle lender relationships, deliver on time due diligence items and get you to the closing table.
Why is a commercial property a good investment?
Purchasing commercial property has proven over time to be a smart investment. The income potential and return on investment (ROI) is typically higher when compared to other investment products. Owning commercial property is a great way to grow business relationships and diversify your portfolio. This is not to say that this doesn’t come with great responsibility, but owning commercial real estate will help you achieve passive income as well as provide depreciation for federal tax purposes. The most important strategy when buying a property is working with an experienced mortgage broker.
Evan Boles is a Financial Analyst with Progress Capital and is experienced in evaluating and underwriting all commercial loan types. Evan is available to assist you with any commercial lending questions you may have.