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The 7 Steps to Purchasing a Commercial Real Estate Property

Commercial real estate is one of the most lucrative investment vehicles worldwide. Investing in real estate is a wise and excellent way to build wealth and diversify a financial portfolio. Purchasing either an office space or land to build a strip mall requires the input of commercial real estate professionals, even for a seasoned real estate investor. We will break down the steps involved in buying a commercial property, even as a first-time investor.

1. Understand Your Purpose for Investing in Commercial Real Estate

Start by asking yourself why I want to invest in commercial real estate? It is an important question to ask yourself before reaching out to a broker to find commercial real estate properties.

What type of real estate are you interested in? Do you want an office building that you can rent out to commercial tenants in exchange for a monthly rental income or a multifamily property which can also provide monthly rental income? Or are you looking to purchase a commercial establishment for mixed-use purposes? That is, rent a part of the building for retail activities and the other for residential purposes.

Whatever your investment goals, you should identify the ‘why’ before investing in a commercial real estate property. Knowing the reason(s) behind your choice of investing in commercial real estate will guide you as you search for the right asset.

2. Evaluate Your Investment Options

It helps that you understand the type of asset classes available for sale. Commercial real estate is usually considered one of five types that include:

  • Multifamily Structures
  • Retail Space
  • Office Buildings
  • Industrial Buildings/Warehouses
  • Raw Land for Development

Before buying a commercial real estate property, you should decide on the type of property that suits your investment portfolio and goals. Ensure you carry out a proper comparative analysis of the location, potential returns, net operating income, demographics of your property, cap rate, and a vacancy rate of each asset class. A Hoff & Leigh broker can provide the resources to prepare this analysis.

3. Secure Financing

Investing in commercial real estate can require significant financial investment. So, before you start your search for a commercial property to buy, you should secure the necessary financing options ahead of your research. If you require external financing, the first line of action is to check your credit. Depending on the mortgage type and lender, the credit score required of you may differ. Review your credit and making sure that the information in your credit reports is accurate and up to date.

Once you verify that your credit report is accurate (you can dispute errors if you find any), take a closer look at the various types of financing options. Depending on your credit score, commercial property type, and down payment there are several loan options to consider. Ensure to compare interest rates, repayment plan, additional fees, and other personal financial factors before making your loan choice decision.

4. Choose the Right Team

Before purchasing a property, you should surround yourself with the right team of real estate professionals to mitigate the risk involved. Below is a list of experts you will surely need to progress on your commercial real estate journey.

  • Hoff & Leigh Commercial Broker
  • Accountant
  • Commercial Real Estate Attorney
  • Commercial Lender or Mortgage Broker
  • Tax Attorney

Before you start searching for potential commercial properties, it is wise that you have your team ready to swing into action. Getting the right help from the start will not only help you make the right purchase decision but will save you money and time in the long run.

5. Find the Right Property

Once you have identified your reason for investing, decided on your investment option, secured the right financing option, and have put together a team of experts you are ready to start shopping for commercial property. A Hoff & Leigh broker can use their network to search for available commercial properties on your behalf. Your broker with help you to consider some crucial factors like usable square footage, location, access to facilities, and other statistics.

6. Do Your Due Diligence

When you finally find a commercial property that meets your investment goals, you must conduct some due diligence. A Hoff & Leigh local commercial broker will be of great help at this point since they have local knowledge of the area. However, it is also advisable that you do some personal research about the market and property yourself. Buying a commercial property involves a substantial financial commitment, so you must conduct the necessary due diligence on the property to avoid buying a money pit.

Some questions you may want to ask, or research include:

  • What has the property been used for in the past? (Do you intend to change the original purpose of the building?)
  • Is it appropriately zoned to work with your new business purpose?
  • What is the current annual rent or income generated from the property? Try as much as possible to get data to determine if there is a growing trend.
  • What are the property taxes?
  • Is the property in need of any major repairs? Getting an inspection officer to inspect the building will help you identify existing/potential structural issues with the property.
  • Is the property situated in an ideal location or close to major social amenities? (If you hope to command great rental rates and attract a high appreciation rate, you should purchase a commercial property in a location that has less than 5% vacancy).
  • What does buying this property mean for your investment portfolio?

Remember that buying a commercial property is quite different from purchasing a residential property. Making a wrong investment choice can have a drastic impact on your finances and personal goals. If you are a first-time commercial real estate investor, you should study enough resources and seek help from more experienced investors.

7. Present an Offer and Close the Deal

When you finally find the right property, it is time to present an offer. A Hoff & Leigh broker will draft the offer to purchase based on specific findings. Be prepared for the seller to ask for a deposit or earnest money (usually 1-2% of the property purchase price) when you go under contract.

However, in a seller-based market (high demand with less inventory), you are bound to face bidding wars. So, you must hire a realtor with proven experience in negotiations. When going under contract, your offer must include a contingency clause. This allows you to back out from the deal with your earnest money deposit if certain things go wrong (like property failing inspection or issues with the zoning). A Hoff & Leigh broker and your attorney will be able to guide you through the entire process.

Contact Hoff & Leigh When Considering the Purchase of Commercial Real Estate

You can rely on the expertise of a Hoff & Leigh commercial real estate broker to guide you through the process of purchasing a real estate property.