How to Buy Commercial Property in 7 Steps

 

Investments in commercial property are commonly known as worthwhile investments. In comparison to residential properties, commercial properties have significantly higher investment costs, including additions and customizations for tenants. As a result, commercial properties also yield significantly higher returns.

The pricing of commercial properties is generally more straightforward than that of residential properties. As compared to buying a residential property, you will not have to deal with emotional or personal attachments.

In this blog post, NYC real estate investor David Ebrahimzadeh, will teach you how to buy commercial property the right way, whether you’re a first-time buyer, an experienced investor, or a seasoned deal maker looking to increase your odds of success.

 

Identify your motivations for investing

Investing is a process that involves three key ingredients: money, time, and risk. The more you put into it, the more you’ll get back. Risk is the unknown - and that’s inherent in all investing, but if you’re willing to take some of that risk, then investing can be a great way to make money. But how much risk is enough?

Well, according to David Ebrahimzadeh, the president of Corniche Capital, that’s up to you. Consider your motivations for investing: Are you trying to make a big gain, or are you looking to improve your financial situation?

If you’re trying to make a big gain, then by all means, go for the big ticket item. If you want to make a small gain, consider the purchase of an existing property that’s for sale and listed for less than market value. If you’re trying to improve your financial situation, look into refinancing your mortgage, taking out a home equity loan, or even lending money to yourself by tapping into your savings. All of these options have their risks, so it’s important to thoroughly evaluate them before taking the plunge.

 

Evaluate different commercial property types

After identifying your motivations for investing, the first thing to consider is what type of commercial property you want to buy. There are four main types of commercial properties: industrial, retail, office, and mixed.

If you’re looking to buy an industrial property, you’re probably thinking about a steel plant or a mining venture. If you’re more of an office type of investor, a shopping center is more your style. The main difference between industrial and office properties is the amount of space available. Retail properties typically have less space and larger lots, but come with more amenities such as drive-thru lanes, corner stores, and restaurants. The main difference between commercial and mixed properties is the traffic and transportation factors. The main transportation factor for retail properties is pedestrians, but for commercial properties, it’s through traffic. If you want to get into the oil & gas business, you’ll likely prefer to buy an office or retail property. On the other hand, if you’re more interested in manufacturing than retail, an industrial property is probably more your style.

 

Lock down your financing

After identifying your motivations for investing, you need to decide what type of financing you want to offer. Retail finance is always easier to get approved for, but you’ll likely need to come up with at least 50% of the purchase price upfront. On the other hand, industrial financing is often through a bank, and you may need to come up with at least 80% of the purchase price upfront. If you’re financing the entire property, make sure you have the cash flow to support the payments. You may also want to consider offering to reduce the amount of the purchase price if the financing falls through. Finally, David Ebrahimzadeh ads, you may want to consider including a land option in your financing so that you have more flexibility.

 

Build the right team for the job

After identifying your motivations for investing, the next thing to consider is who you want to help you achieve those goals. You may have friends and family members investing with you, or you might choose to bring in an investment manager to provide guidance and help you navigate the process.

The best team will have a balance between experience and education. If you have a Ph.D. in finance or an M.B.A., consider bringing in a financial advisor to provide due diligence on the investments you’re considering and help you choose the right type of investment for your financial situation. An investment advisor isn’t a financial manager. An investment advisor is a person who helps you think about all of the financial aspects of various investments and helps you understand your overall financial situation so you can make better decisions.

 

Identify a potential property in your market

After you’ve determined what types of commercial property you want to buy, the next thing to do is find a property in your market that meets your criteria. What type of property is right for you? What are the property lines, zoning, and other factors like in your area that are important to you? Once you’ve identified a potential property, the next step is to find a property agent. An agent is simply a person who helps you find and purchases your target property. Find a real estate agent who’s been in the business for at least five years, has spent at least four months working on your specific market, and has at least two properties to sell. Make sure your real estate agent is a member of the National Association of Realtors (NAR), and make sure he or she is a member of the BrokerCheck member list. This ensures you’re getting a quality partner in real estate.

 

Run the numbers on the property

Once you’ve found a potential property, the next thing to do is run the numbers on the property. What are the property taxes, if any? What are the property insurance premiums? What is the annual maintenance for the property, if any? What is the expected neighborhood commercial tax rate? Are there any local ordinances that may affect your ability to generate revenue? Once you know the answers to these questions, you can use them to guide your analyses. Are the numbers good? Are they realistic? Are they good enough to buy the property? Are there other properties in the neighborhood that could be bought at a reduced price and used as a basis for comparison?

 

Make an offer and close the deal

Once you’ve run the numbers on the property and determined whether or not you should buy the property, it’s time to make your offer. Make sure you notify your mortgage lender of your offer, and schedule a showing for the property. At this point, the seller and you should schedule a meeting to talk through the contract, and finalize your due diligence. Take the seller’s offer and consider yourself a buyer, and make your offer on the table. It’s not necessary to purchase the property right then and there, but it’s a good idea to show up for the closing and sign the contract as soon as possible after the financing is completed.

 

Final thoughts

The search for commercial property can be an exciting, but challenging, journey. In this blog post, we’ve discussed how to buy commercial property the right way, whether you’re a first-time buyer, an experienced investor, or a seasoned deal maker looking to increase your odds of success.