Investing in commercial real estate can have many advantages if you do your homework and take steps to determine that you’re making a safe and profitable investment.
Buying a commercial building instead of renting is a good option for many small business owners. However, it is also a complex undertaking that is even difficult for experts to time right to maximize investment value. There is no simple, one-size-fits-all strategy for purchasing commercial real estate.
What is commercial real estate?
Commercial real estate is business focused. It involves a property that is used for a predetermined business objective. Examples of such types of properties are office, retail and industrial spaces. It is possible to buy a property directly from a property developer or through a commercial real estate broker.
Many financial products on the market do not offer as much return on your initial investment as commercial property. When you buy commercial property, you will reap investment benefits, asset appreciation over the long term and depreciation on the property for tax purposes.
Why you need expert help when buying commercial property
There are certain risks when it comes to buying commercial property. Commercial properties may sit unoccupied in difficult economic times. The area you choose because it’s a ‘hot’ neighborhood may become undesirable.
You may tie up too much of your liquidity when buying commercial real estate and it’s not that easy to sell if there’s a slump. Due to the risks, it’s important to do extensive due diligence when buying a business property.
When buying a commercial property, it’s beneficial to have an accountant figure out what you can afford as well as the tax implications and operating budget benefits. A commercial real estate broker will be able to help you to find the right property once you’ve determined what you can afford.
Identify the right property
Here are some factors to consider when looking at commercial property.
- Location: When buying a commercial property, location is very important. Factors such as access to highways, rail and shipping lanes may be important. For businesses where customers come to them, accessibility is essential. Distance for employees to travel to work and distance from vendors or suppliers also matters.
Physical condition: Consider the wear-and-tear on the property and whether there are any environmental issues.
Allowable uses: Make sure the zoning allows you to do what you need to do.
Parking: It’s vital to make sure there’s enough parking for staff and customers.
Alterations: Make sure there are no limitations on the alterations you can make to the building.
Potential for expansion: Will you be able to expand if necessary?
Evaluate the property
A broker will usually help you to bring in third parties, such as engineers, appraisers or environmental experts, to help establish the condition of the property. They can determine structural soundness, electrical wiring or plumbing problems or potential liability issues.
Making the purchase
Once you've found the right property, evaluated it and established the price, the next big step is to secure financing. At this stage, an attorney and accountant play key roles to ensure that all the contracts are structured to your advantage and sufficiently detailed.
Before buying commercial real estate, you need to think carefully about your decision. It’s important to gain advice from some experts, like an accountant and a commercial real estate broker.
You don’t want to look back after going through with the purchase and realize that you made a mistake. However, if you do your due diligence and select the right commercial property, it can offer great benefits.