Why Are You Buying A Commercial Building Without Knowing This Stuff?

Commercial Real Estate Agent with Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker AZ BR 528507000

Why Are You Buying A Commercial Building Without Knowing This Stuff?


Someone called me this AM, sweet person, noticed that I have a lot of Mohave County AZ Commercial Real Estate listings.


I guess I must be livin' right!


She's thinking of buying a building (told me where it was) and wanted to pick my brain, do I do property management - what could the units rent for?

No (been there, not my drug of choice), and wait a minute.

Where's your agent?


I don't have one.


Where's the listing agent. (One guess!) FSBO.

OK, you're not MY client so I'm not going on record with market rents, return on investment, etc (although as a Mohave County AZ CRE Broker, we DO that for our clients - it's what we do)


BUT you're cool, so I am going to advise you to HIRE a commercial leasing agent/property manager (we have good connects, ask us) and formally engage them to represent you as a landlord.

You will need someone to:


  • Assess rentability of the property. What kind of location? Amenities? Accessibility? Nearby residential to service? Walkability? What about nearby businesses that could symbiotically coexist? ALWAYS start with the END in mind.

  • Along the same lines . . . who is the ideal tenant ? How and where do you find them? CAN you find them and attract them to the property? At what price? Does that price pencil out for you?

  • Income analysis. What IS the target rental rate? Expenses? And how does that translate into return? You don't want to overpay for the property and struggle to keep it full. Know this GOING IN.

  • Marketing plan. What are the best ways of attracting quality tenants? Can your broker do this? Some of these marketing methods are pricey - make sure they can cover all the basis without cutting their own corners. And how well connected are they?

  • Quality tenants. This is HUGE. Your rep should be carefully vetting businesses, checking corporate standings, reviewing financials and if it's a startup, business plan.

  • Someone needs to personally guarantee the lease. And that someone needs to likewise be checked out. Guaranty = landlord can go after that person legally in event of default. But what if there is no blood to squeeze out of the turnip?

  • Deposit. Unlike residential real estate, there is no Statute that limits deposit amounts. Evaluate the strength of the tenant and cost of a disaster, and get enough skin in the game up front to provide some degree of assurance.

  • Maintenance. A decent property management company will have licensed contractors at the ready for TIs, repairs and maintenance.

  • Service Contracts. Big ticket items like HVAC are expensive to repair and maintain, and there are companies who offer service contracts (kind of like a home warranty) for them. Find out who does and the cost. Then, negotiate it into your deal. Everyone wins when the cooler is working in July!

  • Insurance. Require enough from your tenant to cover their contents, liability, employees etc. and make it part of the deal.


Truly, buying an income producing commercial property IS A BUSINESS and for that, you need a business plan.

Start by hiring good help.



Comments (14)

Ronald Curtis
Manes Realty Group - North Palm Beach, FL
Negotiating the best price and terms for my Buyers

Hello Candice......

You certainly provided a lot of very important information for anyone who is thinking of buying a rental building. Needless to say, ROI is the most important. Without factoring 5% vacancy, I would suggest multiplying the gross rent by 7. You should not pay more than this number if your are looking for a decent return.

Oct 10, 2019 10:08 AM
Candice A. Donofrio
That's an easy way to do it. CCIM default vacancy rate is 6% but we always have to adjust that for the property type, area etc. And I have a client who multiplies the gross rent by 10 as a sweet spot. He does great. But everybody's got a different yield in mind. Great comment!
Oct 10, 2019 10:27 AM
Beth Atalay
Cam Realty and Property Management - Clermont, FL
Cam Realty of Clermont FL

Hi Candice A. Donofrio, commercial real estate is a different kind of beast, agents who have no knowledge need to stay out of it and buyers MUST hire a knowledgeable professional to assist them with all aspects of the transaction.

Oct 10, 2019 10:28 AM
Candice A. Donofrio
Agree, or else get with somebody that knows what they're doing and learn. In this situation, nobody was minding the store LOL
Oct 10, 2019 10:31 AM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, eXp Realty - Kalispell, MT
Helping your Montana dreams take root

There is a lot of information that is necessary before making a decision to make a commercial purchase/manage a commercial property. That buyer was very lucky she contacted you so she could hear what is necessary. You know commercial!

Oct 10, 2019 10:39 AM
Candice A. Donofrio
There's a lot to know, and I learn something everyday.
Oct 10, 2019 10:50 AM
Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy


Good for you for teaching some of the principles of commercial real estate to this woman.  So many don't realize that it is not like. all real estate.  A

Oct 10, 2019 10:40 AM
Candice A. Donofrio
For sure and there are so many subtypes.
Oct 10, 2019 10:54 AM
Anna Banana Kruchten CRS, CRB, Phoenix Broker
HomeSmart Real Estate BR030809000 - Phoenix, AZ

Excellent post Candice A. Donofrio . Since I've only sold residential properties I make sure I have a great commercial agent to refer out.  Lots of good info here!

Oct 10, 2019 02:45 PM
Candice A. Donofrio

I have my referral partners for certain types as well!

Oct 10, 2019 02:57 PM
Steffy Hristova
HomeSmart Elite Group Tempe AZ Tel: 480-966-9353 - Tempe, AZ
Tempe AZ Realtor - Your Home Close to Your Work!

Candice, Great information for Buyers of Commercial real estate. I hope they will read it several times and prepare to ask relevant questions the professionals they will hire. Thanks for taking the time to write it down.

Oct 10, 2019 02:58 PM
Candice A. Donofrio

Thank you so much my dear!

Oct 10, 2019 02:58 PM
Kris Collis, Associate Broker
Smart Way America Realty - East Stroudsburg, PA
Professional Results you Expect 570-801-5525

Wow, love that you're training customers that agents do not work for free, especially with all the make it or break it variables in Commercial.  And, pointing a cool person in the right direction solidifies your reputation, again and again and again.  

OK, you're not MY client so I'm not going on record...."  

Keeper line right there!!

Oct 10, 2019 03:59 PM
Candice A. Donofrio

Yeah, no implying agency to anyone with a store that no one's  minding!

Oct 10, 2019 04:18 PM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Every once in a while, we got these people about things they know everything but actually know zip.

Oct 10, 2019 08:56 PM
Candice A. Donofrio
I bet you get that a lot in your business! I will admit, as much as I love FS, I know a tiny bit compared to the Masters.
Oct 11, 2019 05:51 AM
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Lots of excellent advice, however, when a commercial buyer lacks any experience and more importantly essential knowledge about commercial real estate, they usually  end up losing a big portion of their initial investment by not employing an experienced and knowledgeable agent, 

When meeting commercial prospects that are not knowledgeable and/or lack experience, I inform them about my nominal consulting fee to educate them about the elements and issues inherent with commercial real estate. 

I get my prospects to agree to a LOI and attestation of their complete understanding about commercial real estate and their responsibility of due diligence by acquiring all information necessary to ensure their project or commercial real estate goals and objectives could be achieved. 

Oct 10, 2019 10:22 PM
Candice A. Donofrio
I rarely take on startups or 'baby investors'. But someone's got to do it and they need to be compensated for their time and effort.
Oct 11, 2019 05:46 AM
Debra Leisek
Bay Realty,Inc Homer Alaska - Homer, AK

This certainly very good information for anyone considering buying a commercial building. You pretty much spelled it all out 1 2 3 

Good Maintenance venders are very important ... things can take a real turn for the worse with bad maintenance 

Thank You!


Oct 10, 2019 11:02 PM
Candice A. Donofrio
Yeah that's a challenge in my area. Good people don't stay, or beome so busy that they can't be responsive enough.
Oct 11, 2019 05:48 AM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

I agree with all the other comments - you have really laid it out here!  Well deserved feature content! 

Oct 11, 2019 05:01 AM
Candice A. Donofrio
Thank you!
Oct 11, 2019 05:48 AM
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Anyone on a journey, discovery or adventure of value should be asking exploratory questions. This is what triggers meaning/depth the true prize of all

Oct 11, 2019 08:04 AM
Candice A. Donofrio

Essential. Helps to have a wise guide to help with knowing what the questions should be. Life is like Jeopardy! :D

Oct 11, 2019 08:22 AM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude


Great advice here! Hopefully it will sink in for that caller, or anyone else who really can benefit from your wisdom, education and guidance in the commercial market.

Have a terrific weekend!


Oct 11, 2019 11:19 AM
Candice A. Donofrio

You as well!

Oct 11, 2019 01:49 PM
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

I have several clients who want commercial properties, I usually work with an agent/broker who used to be in our company just dealing with commercial, and now heads up an office for a commercial outfit. He pays me a referral fee and I know my clients get looked after. 

Oct 12, 2019 08:31 AM
Candice A. Donofrio

And there are several 'disciplines' I just don't prefer to work in (Business brokerage for sure) that go to MY referral partners. I 'can' but there are those who 'it's all they do' so why not use that superior level of expertise?

Oct 12, 2019 08:41 AM