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Investor’s Guide To Buying Commercial Property

Commercial Property Investors

Commercial real estate is at the top of many investors’ wish lists, and for good reason: it has proven to be a lucrative endeavor time and time again. However, if you want to buy commercial property it is important to understand that increased reward can also mean increased responsibility. That’s why it is crucial to mind your due diligence and follow sound practices.

As you might expect, commercial properties are a departure from traditional single-family investments. From crunching numbers to raising capital, buying commercial real estate will require more out of an investor. That said, with the right dedication you can learn how to take on more complex properties. The following guide will walk you through how to buy commercial real estate and help you get started today.

Commercial property is any real estate property that is specifically used for business purposes. Commercial property is defined as buildings that house businesses, land that has a primary purpose of generating profit, and residential rental properties. Using a building as a commercial property affects financing on the property, tax treatment, and specified laws on the building.

Commercial property includes malls, grocery stores, office buildings, manufacturing shops, and much more. The performance of commercial property, including sales prices, new building rates, and occupancy rates, is often used as a measure for business activity in a given region or economy. For the United States as a whole, Moody’s provides the Moody’s/RCA Commercial Property Price Indices (CPPI), which measures the price changes in commercial real estate across the country.

Buying commercial property is commonly known as a worthwhile investment. Investment costs, including additions and customizations for tenants, are significantly higher than residential properties. In turn, the returns on commercial properties are also significantly higher.

Commercial properties tend to have more straightforward pricing compared to residential properties. You will not have to deal with factors as you would with buying residential properties such as emotional or personal attachments.

Buying commercial properties also opens you to the triple net lease where some of the risks will be dealt with by the leasing business; this is not available to residential real estate investors.

Commercial properties tend to have more straightforward pricing compared to residential properties. You will not have to deal with factors as you would with buying residential properties such as emotional or personal attachments.

How To Buy Commercial Property In 7 Steps

  1. Identify your motivations for investing
  2. Evaluate different commercial property types
  3. Lock down your financing
  4. Build the right team for the job
  5. Identify a potential property in your market
  6. Run the numbers on the property
  7. Make an offer and close the deal

Buying commercial properties can be thought of similarly to purchasing traditional real estate, but on a bigger scale. Investors will still need to conduct sufficient research and mind due diligence; but there will be differences in the numbers. Commercial properties often equate to higher purchase prices, longer leases, and increased rental income. To prepare for these differences, investors should ensure they have the right systems in place. Not surprisingly, as you gain experience you will become more comfortable analyzing properties and landing deals.

Ask Yourself Why You Are Investing

Before you can even consider buying commercial real estate, you need to ask yourself why you are doing so in the first place. There is no point in investing in a commercial asset if you don’t know what you hope to accomplish. Instead of investing first and determining what you want later, try identifying your “why” first. Determine what you want to accomplish, and then search for an investment that can help you achieve that goal.

Consider Your Investing Options

Commercial real estate is a broad term, and can include everything from retail shops, industrial complexes, office buildings, large apartment buildings and a whole slew of other types of commercial real estate. In other words, commercial real estate is property used for business purposes. It is, therefore, in your best interest to determine which type of commercial real estate you want to deal in. To help you with your decision, remember why you are investing in the first place.

Secure Financing

Try to secure financing before you even start looking for a commercial real estate property to buy. That way, you’ll not only know how much you can afford, but you will be able to facilitate a deal faster and more efficiently with the money “in hand.”

Align Yourself With The Right People

Real estate is a people business, and buying commercial real estate is no exception. You will want to make sure you align your services with the right professionals. Consider hiring a commercial real estate agent that specializes in the types of transactions you hope to complete, a commercial real estate attorney well-versed in the laws of commercial real estate, and even a certified personal accountant (CPA) to make sure the deal goes according to plan. There are a number of professionals that can help, so don’t be afraid to ask for assistance. The right partners may be the key to landing the deal of your dreams.

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    Melissa Donnahoe