Retail: These are properties leased to commercial tenants, like malls, strip malls, and other types of shopping centers. Residential: These are typically apartments, but can vary widely in their setup (high rise apartments, garden apartments, etc. ). Hotels: This includes any type of hotel or motel. Office: work spaces for businesses. Industrial: manufacturing spaces like factories and warehouses. Land: this can be either developed or undeveloped (raw) land. [1] X Research source
Many investors purchase raw land that may increase in value as developers build on surrounding land. In addition, developing the land itself increases its value and attractiveness to other buyers. [2] X Research source You have the potential to generate significant income, including an annual return on the purchase price that can be 6 percent or higher. Unlike residential real estate leases, commercial property owners and tenants both have a vested interest in maintaining the property to support and increase business. This works in favor of the property owner since the property lessee is more likely to invest in creating a workable and attractive space. You may be able to enter into a triple net lease, whereby the lessee pays for property expenses and real estate taxes and the buyer is only required to pay the mortgage. Large companies with many retail spaces are more likely to enter into these types of leases. Typically, commercial leases are more flexible because they are not regulated as closely as residential leases since the lessee and lessor are typically both business entities. [3] X Research source
A buyer must consider how much time they have to dedicate to the management of the property. The owner is responsible for managing each property, assessing safety and maintenance issues, and drafting leases. An investor who wants to see a large return should expect to spend a significant amount 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 the purchase and maintenance of the property, which could require a significant financial outlay. You may be required to put forth a large down payment or put money into replacing a roof or repaving a parking lot. [4] X Research source
Do they have experience in commercial real estate transactions? Do they have enough cash or credit to help you secure a mortgage? What type of investment return do they want? What level of management, if any, do they want with the property?[6] X Research source
Make sure that your broker is not only experienced in finding property but also in locating potential tenants for the property. Make sure that the broker is experienced in commercial transactions and not residential transactions. Identify a broker who is established in the community, has an office, and financial stability so that he/she is able to prioritize your business needs and is not focused on their commission or fee. Ask other commercial property owners for recommendations. These owners may be the best source in vetting potential brokers. Meet with several brokers before you make a decision. [7] X Research source
Retain an attorney that has worked in the community in which you are investing. [8] X Research source By hiring a local attorney, you can more easily ask former clients for their opinion of the attorney. You can locate an experienced attorney by asking for a recommendation from other businesses or by contacting your state bar association and using their attorney referral system.
Ask yourself whether the CPA is someone you feel that you can work with for a long time. A good CPA will continue to work with you well beyond the initial purchase of the property so it is important to establish a good working relationship. Interview multiple CPAs to get a sense of who would best meet your business needs. Ask them to discuss their credentials, services and fees. Ask them to discuss their specialization in tax and accounting and whether they could help form an LLC. Ask for a list of references for whom they handled commercial real estate-related business. [9] X Research source
Office buildings include properties located in central business districts or in suburban office parks. Industrial properties include properties for manufacturing as well as warehouses. Retail properties include strip malls of varying sizes, regional malls and area set aside for retail chain restaurants or other retail stores. Apartment buildings, which may include smaller apartment buildings of 3 to 4 stories, midrise buildings that are between 5-9 floors and include an elevators as well as high rise buildings. Many commercial real estate investors focus on raw land, which can either be developed or held with the hope that the land increases in value as other investors develop the land around it. [10] X Research source Hotels are also a type of commercial property. [11] X Research source Some investors may think that they would be more comfortable investing in an apartment building because it seems more familiar. Yet, when making your investment you should consider whether an apartment building as opposed to an office building or strip mall meets your specific investment goals. You should also discuss these goals with your lawyer and CPA. Be sure to look at a variety of locations as well as property types. The property’s location could significantly impact the rate of return as well as the amount of the initial investment. [12] X Research source
How the property is currently being used. Zoning allowances and exclusions for the property—what type of business can and cannot be conducted at the location. [13] X Research source
Why the owner is selling the property. This information may be able to help you in negotiation. Determine if there are any major repairs necessary. Explore the area surrounding the property to determine how local business and real estate is doing and whether there are any major changes proposed for the area. [14] X Research source
Consider using a lender with whom you have an established relationship. This may help you to more easily secure the loan. Lenders 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.
The agreement should be in writing and include any agreements made by the buyer and seller, as well as the signatures of the buyer(s) and the seller(s). If there is a dispute between the parties, the court will closely examine the contract in evaluating the parties’ claims. Specify under what circumstances a party can terminate the contract and that the notice of termination must be in writing. [19] X Research source The agreement should contain the names of the parties, the address and a description of the property, as well as the sale price and the closing date. The contract may specify the type of deed that will be delivered to the buyer at closing. The buyer should state that the purchase is contingent on getting a mortgage, if applicable. The seller should specify that the property is being sold “as is” or outline any work that will be done on the property prior to the closing date. The buyer should state that the sale is contingent upon a thorough inspection of the property.
