5 Steps to Buying Your First Commercial Property
Not all investments can be successful as you hoped they would be. Commercial real estate (CRE), like any other investment, requires a lot of research, knowledge, and effort to be successful -- most especially if you are a first-time buyer. That’s why it is important to weigh the pros and cons before making your first purchase and to understand that though investing in CRE can potentially yield big returns, there are also risks imposed in this type of investment that you should be mindful of. 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 also be a long process. In this article, we will help you cover all your bases and will walk you through the important steps to purchasing your first commercial property.
5 Steps to Buying Your First Property:
- Ask and assess
The first step is to identify your “why”. Ask yourself why you want to buy a commercial property in the first place, or why would you choose this type of investment. Determine your end goal because there is no point in investing in a commercial asset if you don’t know what you hope to accomplish.
Then, assess the “what” in your goals. What type of commercial property do you want to deal with? As you may know, CRE is a broad term – it simply doesn’t limit itself to high-rise buildings near the downtown area. It can include everything from office and medical buildings, industrial complexes, retail shops and restaurants, apartment buildings, and many more; as long as it is used for business purposes. Thus, assess what type of commercial property suits your business plan – the type of CRE that would help you achieve your ultimate goal.
- Secure financing
Buying your first commercial property can be quite a challenge and before you start searching for your first property to buy, figure out your financial position first. Like many individuals, you’ll likely need financing to purchase a commercial property. Any bank, credit union, or lender will require you to procure a personal financial statement which lays out all your assets, debts, and other financial obligations. This is one way for them to assess whether you are creditworthy or not. Therefore, it is better to have this form ready in hand when shopping for the best lender.
Here are some of the Types of Commercial Property Loans that could help you finance your first commercial property:
- Bank Loans
- Life Insurance Companies
- Agency Loans
- Debt Funds
- Commercial Mortgage-backed Security (CMBS) Loans
It is also in your best interest to know whether the type of commercial property you wish to buy is within your budget; otherwise, the bank, credit union, or lending company will most likely deny you financing. That’s why it is wise to line up your financing options in advance.
- Build the right team
Purchasing commercial property is a complex process and involves a lot of components. Thus, it is important to surround yourself with the right people. It may seem costly hiring these professionals, but it will surely save you from making mistakes along the process. That being said, building your A-team will make sure your investment will go smoothly and have the best chance of success.
Your team should include:
- an accountant to assist you in analyzing your financial position and what properties you can afford, not to mention the tax benefits you get with buying that property.
- a commercial real estate broker that specializes in completing this deal. He/she can help find the right property for you – which meets your criteria. Your CRE broker will also alert you with viable properties that just hit the market.
- a commercial real estate attorney, the main role of your CRE attorney is to help you prepare the contract for the purchase transaction of your chosen property. He/she will also oversee the legalities of the transaction.
- a commercial property mortgage broker who can work with you in obtaining the financing you need for your investment. He/she will also take care of the financial aspects to complete the transaction.
Several professionals can also help especially if the property you choose to purchase is a bit complex. Outside of that, consider hiring these experts at the very least as they will help you land that first property you always have been dreaming of!
- Mind due diligence
You may already have a property in mind that you want to purchase. But before closing that deal, you should consider doing your homework first; hence, mind due diligence.
A lot of factors are to be considered in choosing the right property for you. Always run the numbers and analyze the deal as a whole. Location is usually the most critical factor – see to it that the property is accessible since location is significant in your business operations. Also, make sure that your chosen property is best suited to your business goals. If not, consider looking for other commercial properties.
Lastly, there will always be risks in any type of investment. Therefore, make it a point that the inherent risks are worth the potential rewards you will gain in the long run.
- Make an offer and close the deal
After considering all factors and once you find a property worth pursuing, write up an offer. At this point, your CRE agent will help you in making your purchase offer. Once a contract is drafted it should be reviewed by your attorney first before you sign it. Some sellers ask for earnest money as a sign of good faith that you are interested in buying the property, so be prepared for this.
More importantly, make sure that you write an offer with a contingency clause. In cases that certain problems may arise or that the commercial property doesn’t pass your inspection during your due diligence period, you have an escape hatch and can discontinue the transaction.
If the transaction looks good, all things considered, continue to mind due diligence by reviewing all included documents until you move forward toward closing the deal. During this time, you will need the help of your team of experts in checking that everything looks good since the deal is coming up to a close.
Buying your first commercial property is not that easy and everyone should consult a professional before moving forward with a CRE purchase. Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at email@example.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE