There’s a lot to consider when you buy a piece of commercial property. Before you make an offer and finalize a deal, it’s vital that you double-check every potential issue to avoid any surprises in the future and review every part of the transaction.
Doing this is referred to as “due diligence.” But, what you should put on your list may not be entirely clear, and the consequences of missing an item or two could be costly. Here is a brief guide to ensure that you are getting the most value for your money with your next commercial transaction.
Checklist for Buying Commercial Real Estate
Even before you make an offer, there’s a ton of work involved in getting the best commercial real estate deal. Once you make an offer and pay your security deposit, you generally have a period of time (about 30-45 days) to complete your due diligence.
Here are some items you’ll want to put on your checklist:
1. Research the Area Thoroughly
It’s important to understand that not every available property will have an online sales listing. When you work with an experienced commercial real estate firm, you’ll have access to properties that are both on and off-market.
You may already have an area and property type of interest, but your commercial real estate broker can help optimize your search by expanding your options. You can also specify certain parameters, such as the sales and debt characteristics of a property.
2. Analyze Your Properties of Interest
Once you have a list of properties, it’s time to take a deeper dive into your analysis. You can review the tenant history of a property, its sales history, and tax information. When you’re ready to reach out to the owners, this information is available as well.
3. Create a Realistic Value
When you’ve identified an asset that you’d like to own, it’s time to assign a value to the property for the purposes of making an offer. Take a look at the most recent sales price of the property and consider other factors, such as the housing market and local influencers. It’s also time to find real estate comparables in the area to give you further insight into the value of the asset.
4. Get the Property Inspected
Before you purchase a commercial asset, you’ll want an inspection. Hire a third-party inspector to look at a variety of issues relative to the building’s roof, walls, HVAC system, plumbing, wiring, and foundation. You’ll also want to make sure that everything is compliant with the latest codes for mortgage, insurance, and improvement purposes.
5. Review the Property Titles and Deeds
Since you want the property to be “yours” when you buy it, it makes sense that you should avoid anything that is tied up with tax debt or other liens. Review the property titles and deeds to make sure they are in order before moving forward.
6. Order a Property Appraisal
ROI is an essential factor for many commercial property purchases. As a backup for your own calculations and to help with your mortgage approval process, have the asset appraised. Be sure to allow enough time in your schedule for this process since some commercial buildings can take weeks (or longer) to complete the appraisal process.
7. Confirm that Zoning Meets Your Needs
Confirm that the property is going to meet your needs when it comes to zoning and other regulations. If you want to create apartments and the property is zoned for commercial use only, you may run into some issues. The same holds true if you have plans for expansion.
8. Connect with a Lender
Either at the beginning of this process or early on, you should have some idea about how you will finance your upcoming purchase. Research your options and have a fallback plan, since real estate markets can change quickly.
Buying commercial real estate is a big endeavor, even if you’ve completed these transactions in the past. Caldwell Commercial is a trusted partner for clients wishing to buy, sell, and manage commercial property throughout the Charleston, SC area. Contact us today to learn more about how we can put our 80 years of combined experience to work on your behalf.