It’s easy to fall in love with the looks — and potential earnings — of a commercial building. But like other business decisions, buying commercial real estate requires you to be thorough and cautious.
Whether the building you’re eyeing is in Portland or Denver, use this checklist to assess if you’re ready to have your real estate attorney offer a bid or finalize a deal. This is especially helpful if you’re a first-time commercial property investor who wants to avoid various legal and financial issues down the road.
Do Pre-Purchase Inspection
Inspecting the building for structural issues can help you estimate the cost of necessary repairs. Of course, you should consider this cost before offering a bid. You don’t want to spend on too many fixes and end up losing your supposed additional revenue for this investment.
One major thing to remember is that commercial building inspection is different from a home inspection. Besides searching for structural problems, home inspectors often look at a property from a performance standpoint — checking if the heater works efficiently or the garage door opens properly.
Commercial real estate inspections, on the other hand, focus on assessing the lifespan of a building’s major systems, including electrical, heating and AC, plumbing, and roofing. This assessment should tell you whether you can enjoy a quality building for decades or need to upgrade a system next year.
Make sure you hire a qualified, experienced commercial real estate inspectors before offering a bid.
Finance Your Purchase
After you find out the possible repair costs and other expenses, include them in your business plan and financial forecasts. Go over these figures with an accountant or financial advisor. Then, prepare a brief synopsis of your financing needs and present it to a lender. Be sure to get, at least, a pre-approved commercial real estate loan, so you have something to back up your bid.
Perform Due Diligence
Performing due diligence is often the most ignored or rushed step in owning commercial property. Many first-time investors get too impressed with a property or want to get revenues right away that they end up failing to assess all the crucial contracts and documents related to the building.
If possible, give yourself at least a month to perform due diligence before finalizing a deal with a seller. Make sure to examine leases with current tenants and check their payment histories and credit files. You don’t want to buy a building full of tenants who are often late on rent payments.
Also, check the property’s maintenance contracts, insurance policies, and title documents. It is best to have your lawyer examine them, so there are no unpleasant surprises once you take over the building.
Commercial real estate acquisition can be quite a process, but if you follow this checklist, it can be a bit smoother. Plus don’t hesitate to have third-party consultants like lawyers and accountants assist you. Be sure to do all the things you can do to steer away from mistakes that may not only haunt you during the sale but also in the future. Remember, no deal is often better than a bad deal.