Commercial real estate investing can be a lucrative venture for those with the right experience.There are a number of factors that you should consider before investing in commercial real estate, including the risks and benefits of the investment, the type of property you want to acquire, and the best way to protect your personal assets.It is best to surround yourself with experienced investors and professionals to help guide you through the process of buying a commercial property.
Step 1: There are different types of commercial real estate.
Shopping centers and office space are not the only types of commercial real estate.Residential spaces leased out to tenants and raw land that will be developed are included in the definition of the term.Malls, strip malls, and other types of shopping centers are retail properties that are leased to commercial tenants.These are typically apartments, but can vary widely in their setup.Any type of hotel is included.Work spaces for businesses.Industrial spaces are similar to factories and warehouses.This can be either developed or undeveloped.
Step 2: There are benefits to buying commercial real estate.
Potential investors can benefit from commercial real estate investment.Depending on the real estate market, the number of leases already in place, and the overall condition of the property, investors can turn a significant profit.Many investors purchase raw land that may increase in value as developers build on surrounding land.Developing the land increases its value and attractiveness to other buyers.You have the potential to make a lot of money, including an annual return on the purchase price that can be 6 percent or higher.Commercial property owners and tenants have a vested interest in maintaining the property to support and increase business.Since the lessee is more likely to invest in creating a workable and attractive space, this works in favor of the property owner.A triple net lease is where the lessee pays for property expenses and real estate taxes and the buyer only has to pay the mortgage.Large companies are more likely to enter into these types of leases.Commercial lease are more flexible because they are not regulated as closely as residential lease, since the lessee and lessor are both business entities.
Step 3: Evaluate the risks of investing in commercial real estate.
Potential owners must consider risks and benefits when buying a property.A buyer needs to consider how much time they have to devote to the management of the property.The owner is responsible for managing each property.An investor should expect to spend a lot of time on the needs of the property.If management of the property becomes too burdensome, the buyer might need to retain expert help to manage all aspects of purchase and maintenance, which could require a significant financial outlay.A large down payment is required to replace a roof or repave a parking lot.
Step 4: Take a look at your investment strategy.
Commercial real estate investment requires a longer time commitment than residential investment and can be riskier.Commercial property investors should hold onto the property for at least ten years to see a stable and significant return on their investment, according to some experts.Commercial real estate may not be the best option if you want to make money quickly.
Step 5: Financing can be found.
Individuals can't finance the purchase of a commercial real estate venture on their own.In order to raise the significant amount of capital that is required in a commercial real estate investment, the investor will have to find outside financing.This means applying for a commercial loan, working out seller financing with the current owner, or finding partner investors to raise the funds and to help guide the investment.It's important to find experienced investors for first-time investors.Do they have experience in commercial real estate transactions?Are they able to help you secure a mortgage?What type of return do they want?What level of management do they want?
Step 6: Find a commercial real estate broker.
If you want to locate and acquire prime commercial real estate, you need a broker who has significant experience with commercial properties.Make sure that your broker is experienced in locating potential tenants for the property, as well as in finding property for you.The broker should have experience in commercial transactions and not residential transactions.A broker who is established in the community, has an office, and financial stability is able to prioritize your business needs and is not focused on their commission or fee.Ask other property owners for their opinions.The owners may be the best source for vetting potential brokers.Before you make a decision, meet with several brokers.
Step 7: You can find an attorney for commercial real estate.
These attorneys are experienced in dealing with contracts, property law, and state and local laws.There is a need for an attorney who has experience representing commercial real estate buyers.You should retain an attorney that has worked in the community you are investing in.You can ask former clients for their opinion of the attorney if you hire a local attorney.If you want to find an experienced attorney, you can use the attorney referral system of your state bar association or ask for a recommendation from other businesses.
Step 8: A certified public accountant can be hired.
A CPA who is experienced in working with commercial real estate transactions is what you want.Although this will primarily be the responsibility of your attorney, a CPA can help you evaluate the financials of a property, advise you about its investment potential, prepare financial statements and review contracts.Do you think the CPA is someone you can work with for a long time?Establishing a good working relationship with a CPA is important because they will continue to work with you after the initial purchase of the property.Interview multiple CPAs to find out who is best for your business.They should talk about their credentials, services and fees.Ask them if they could help form an limited liability company.For whom they handled commercial real estate-related business, ask for a list of references.
Step 9: There are a lot of commercial properties.
The benefits and drawbacks of different types of commercial properties should be explained to you by your broker.If you have invested in commercial property in the past, you should still make a full evaluation of what type of property best suits your current needs.Office buildings can be found in central business districts or in suburban office parks.Industrial properties include manufacturing and warehouses.Retail properties include strip malls of varying sizes, regional malls and area set aside for retail chain restaurants or other retail stores.Smaller apartment buildings of 3 to 4 stories, midrise buildings that are between 5-9 floors, and high rise buildings all have elevators.Many commercial real estate investors focus on raw land, which can either be developed or held with the hope that the land will increase in value as other investors develop it.A hotel is also a type of commercial property.Some investors think they would be more comfortable investing in an apartment building because it seems familiar.You should consider whether an apartment building is better for your investment goals than an office building or strip mall.Discuss your goals with your lawyer and CPA.It is important to look at a variety of locations and property types.The location of the property could affect the rate of return as well as the amount of initial investment.
Step 10: Determine the available uses.
The type of business that you want conducted on your property must be approved by the city.How the property is being used should be the first thing you look at when evaluating a property.What type of business can and cannot be conducted on the property.
Step 11: The owner is selling the property.
There can be many reasons why a business is looking to sell its commercial property holdings.Try to determine why the owner is selling the property.You may be able to use this information in a negotiation.If there are any major repairs that need to be made.To find out how local business is doing and whether there are any major changes proposed for the area, take a tour of the surrounding area.
Step 12: Examine the possibility of expansion.
You should always be thinking about the future expansion of the property, even if you have a modest or semi-modest approach to your investment initially.If your business fails to thrive, you should determine if there is room for growth or leasing alternatives.
Step 13: Look for a lender.
Because of the high cost of buying commercial property, most buyers need to secure a loan from a reliable lender.You can get financing from the lender to purchase the property.You should look for people with experience in commercial real estate.If you have an established relationship with the lender, consider using them.This may make it easier to secure the loan.A lender with experience with commercial transactions will be able to direct you to a variety of funding opportunities and should be well versed in any necessary paperwork and regulations.
Step 14: The property should be inspected.
When you make an offer and the offer is accepted, you need to have the property thoroughly inspected.You want to negotiate with the seller over any work that is required, such as a new roof, if the physical property is in working condition.
Step 15: You can contact an insurance agent.
If you decide to move forward with the purchase, you should speak with an insurance agent about the types of coverage you need.On the date that you become the property owner, you want to make sure that your coverage is in effect.
Step 16: All disclosures should be reviewed.
Any physical or environmental issues that impact the property must be turned over to the seller.If you are following federal environmental law, you may need to take additional steps to evaluate any potential environmental impacts.
Step 17: Prepare an analysis of income and expenses.
Once you have evaluated the physical property, the potential impact on the environment, and the seller's disclosures, you should have your experts create a detailed analysis of potential income and expenses.It is important that you conduct this analysis before purchasing the property in order to verify that it is still a sound investment.
Step 18: The commercial real estate can be purchased.
Understand your rights and obligations by having your lawyer explain the sales agreement to you.The agreement should be in writing and include any agreements made by buyer and seller, as well as the signatures of the seller and buyer.The contract between the parties will be examined by the court if there is a dispute.The notice of terminated contract must be in writing.The agreement should include the names of the parties, the address, and a description, as well as the sale price and the closing date.The type of deed that will be delivered to the buyer at closing may be specified in the contract.If applicable, the buyer should state that the purchase is contingent on getting a mortgage.Any work that will be done on the property prior to the closing date should be specified by the seller.The sale is contingent upon a thorough inspection of the property.