Best Practices When Buying Commercial Real Estate

January 25, 2023
Posted in News
January 25, 2023 veps

Many investors find commercial real estate to be a lucrative endeavor. However, it’s essential to understand that potentially increased rewards often involve more responsibilities. Hence, investors must exercise due diligence and follow sound practices when buying commercial real estate.

As most would expect, investing in CRE differs from buying single-family properties. Buying commercial real estate requires investors to crunch more numbers and raise more capital. Nonetheless, investing in commercial real estate can be done with the proper dedication. As a commercial real estate broker and investor, below are my tips on what you need to know when buying commercial real estate.

Defining ‘Commercial Real Estate’
Commercial properties are those that are used for business purposes to generate income. These properties include land, large residential rentals and other buildings. Some common examples include:

• Shopping centers and storefronts;

• Warehouses and other industrial property;

• Condominium buildings or residential housing with more than five units;

• Hospitals and other medical buildings.

Seven Steps For Buying Commercial Real Estate
Buying commercial real estate the first time can be tricky, so investors must take the time to learn about the process and know what to expect.

Here are the seven steps required to buy CRE:

1. Know why you are investing.

Before searching for a property to buy, ask yourself why you want to invest in the first place. Most investments are pointless if you don’t know what you’re hoping to gain. Hence, it’s vital that you consider the “why” before choosing the “what.” Understanding this information immediately provides an excellent starting point and keeps you on the right track.

2. Weigh all options.

Commercial real estate encompasses many property types, ranging from industrial complexes and retail shops to office buildings and hospitals. In general, CRE is any property that’s designated for business purposes. So, you must choose the type of property you’re comfortable managing.

3. Secure financing before shopping.

Applying for financing before shopping can not only save time but also protect you from disappointment. After all, what’s the point of shopping if you don’t even know your budget? Moreover, securing financing ahead of time allows you to close the deal much faster once you choose the right property.

4. Partner with the right people.

Just like with residential property, many professionals deal in commercial real estate. If you’re looking to have outside help when buying CRE, choosing the right expert to help you through the process is crucial. Ensure your potential partner is an experienced and reputable commercial real estate agent or attorney who understands the process thoroughly.

5. Locate the perfect property.

It’s time to start your property search. By now, you should know what type of property you want, so stick with it. Keeping your investing goals in mind will ensure you reach your ultimate goal. And remember that regardless of how great the property seems, buying it is pointless if it doesn’t get you closer to your goal.

6. Exercise due diligence.

Every real estate purchase should be carefully thought out and planned. Ask yourself questions such as: Does the risk outweigh your rewards? And are there other commercial properties that better fit your needs? Analyzing every detail will ensure the property benefits your portfolio before moving forward.

7. Close the deal.

When you find a property that fits your needs, consider making an offer with a contingency clause. For example, an offer might include an inspection contingency that allows you to back out of the transaction if the property doesn’t pass. Also, ensure all appropriate insurance is in place and all documents are completed and reviewed. Once everything looks good, you can close the deal.

The bottom line is that commercial real estate can be a valuable investment if you’re looking to diversify your portfolio quickly. The process can be daunting, however, so it’s important to keep a few best practices in mind.

source: forbes