Not all investments turn out as you expect, and commercial real estate (CRE) is no exception. Like any investment, CRE requires research, knowledge, and effort to succeed—especially if you’re a first-time buyer. It’s crucial to weigh the pros and cons before making your first purchase. While CRE can offer significant returns, it also comes with risks. As the saying goes, “The bigger the risk, the bigger the reward.” Purchasing commercial property is a great investment for your business, but it can be a lengthy process. In this article, we will walk you through the important steps to ensure you cover all your bases.
1. Ask and Assess
The first step is to determine your “why.” Ask yourself why you want to buy a commercial property and why this type of investment appeals to you. What is your end goal? There’s no point in investing in commercial real estate if you don’t know what you hope to achieve. Next, assess the “what.” What type of commercial property aligns with your goals? Commercial real estate includes a wide range of property types, from office buildings and industrial complexes to retail spaces, restaurants, and apartment buildings. Consider what type of property will best serve your business or investment plan.
2. Secure Financing
Buying commercial property can be financially challenging. Before you start looking for a property, assess your financial situation. Most individuals need financing to purchase commercial property, and lenders like banks or credit unions will require a personal financial statement. This statement outlines your assets, debts, and financial obligations, helping lenders determine your creditworthiness. It’s also important to know if the type of property you’re eyeing fits your budget. Here are some common types of commercial property loans: Bank Loans, Life Insurance Companies, Agency Loans, Debt Funds, and Commercial Mortgage-backed Security (CMBS) Loans. Make sure to line up your financing options in advance to avoid potential issues during the purchasing process.
3. Build the Right Team
Purchasing commercial property is complex and involves many components. Surrounding yourself with the right team is crucial to avoid costly mistakes and ensure a smooth process. While it may seem expensive to hire professionals, their expertise will save you time and money in the long run. Your team should include an accountant to analyze your financial position, determine what properties you can afford, and advise on tax benefits; a commercial real estate broker who specializes in finding the right property that meets your criteria and alerts you to new opportunities; a commercial real estate attorney to prepare and review the contract and oversee the legalities of the transaction; and a commercial property mortgage broker who can help secure the financing needed for your purchase and manage the financial aspects of the transaction. If your chosen property is complex, additional professionals may be needed. But at the very least, consider hiring these key experts to guide you through the process.
4. Mind Due Diligence
Even if you have a property in mind, it’s essential to do your homework before closing the deal. This is where due diligence comes in. A thorough analysis of the property helps you understand its value, risks, and potential. Location is a critical factor. Ensure the property is accessible and aligns with your business operations. It’s also important to assess whether the property supports your business goals. If it doesn’t, you might need to look for another option. Finally, keep in mind that every investment comes with risks. Always ensure that the potential rewards outweigh the risks involved in the long term.
5. Make an Offer and Close the Deal
Once you’ve considered all the factors and found a property worth pursuing, it’s time to make an offer. Your commercial real estate agent will assist in drafting the purchase offer. Before signing, have your attorney review the contract to ensure everything is in order. Sellers may ask for earnest money, a sign of good faith that you’re serious about the purchase. It’s also important to include a contingency clause in your offer. This gives you an escape route if the property doesn’t pass inspection or other issues arise during the due diligence period. If everything checks out, move forward with closing the deal. At this stage, your team of experts will review all documents and ensure the transaction goes smoothly.
Conclusion
Buying your first commercial property is a significant investment that requires careful planning, research, and teamwork. By following these five steps—assessing your goals, securing financing, building the right team, conducting due diligence, and closing the deal—you can set yourself up for success in the commercial real estate market.
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Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
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