COMMERCIAL REAL ESTATE
You need to know that having the right capital to buy a certain property is not enough for you to make a good investment. You need to be familiar with the market conditions as well.
Buying commercial real estate can be a sound investment for your company, especially if you’re looking to cut costs by using it for your own operations instead of paying a lease to another party. However, before you buy commercial real estate, there are a number of factors to consider, ranging from the financial health of your own company to the viability of the commercial real estate you have in mind. It’s important to understand that these types of investments are made after careful deliberation and analysis of the potential return on investment. Read the following steps to learn how to buy commercial real estate.
Analyze the benefits of buying commercial real estate, as well as the risks.
- A benefit of buying commercial real estate could be that if you are buying to maximize your return on investment, it will, in most cases, offer more returns than leasing.
- In addition, if your company has substantial profits, you can offset those at tax time by claiming depreciation of your property.
- Furthermore, though for tax purposes you can claim depreciation, owning commercial property adds to your asset appreciation over time, which means that your company’s equity grows.
- A risk of buying commercial real estate can be that the choice of location doesn’t withstand real estate trends. A location that’s in high demand this year can lose all commercial appeal next year, and that affects the value of the property, as well as the attraction of your business if it operates out of that location.
- Another risk of investing in commercial real estate can be loss of liquidity. When an enterprise invests hundreds of thousands of dollars in commercial property, that’s money that isn’t readily available. Though this isn’t likely to be a problem when business is good, in tough economic times it can be hard to sell real estate to release the invested funds
- If you’re planning to rent out your commercial real estate, it’s important to understand that leasing is not a secure form of cash flow. Tenants can be late with their payments, or even neglect to pay at all, and if you’re depending on the income it can be a stressful situation.
Assemble a group of experts to advise you
- You’ll need an accountant, a lawyer, a commercial realtor, and a mortgage broker on your team
- Your accountant can discuss the financial aspects and options of buying commercial real estate.
- Your lawyer can help you draw up any contracts pertaining to buying or leasing a property.
- A commercial realtor can alert you to viable properties in the area.
- A mortgage broker can work with you to obtain the necessary funding for your real estate investment.
Choose a commercial property to buy
- Aspects to consider before buying are location, condition of the property, which business uses are allowed, how accessible it is to clients and suppliers, and what possibilities it offers for leasing and re-selling. In addition, make sure to do a title search so you know the property is not compromised by any pre-existing agreement, and check the zoning laws and development plans to see what types of business are allowed in that location and what types of adjustments to the infrastructure and city planning might affect the property.
Secure financing for the commercial real estate
- Make sure before you apply any mortgage, that you have the down payment covered, as well as proven income to cover the monthly payments.
Buy the commercial real estate
- Have your lawyer explain every detail of the sales agreement so you know exactly what your rights and obligations are.