1.) What’s Your Type?

There are many different types of commercial properties that you can purchase, including:

• Office
• Retail Space
• Warehouse Facility
• Restaurant
• Commercial Condo
• Strip Mall

The first step is defining what property type you want to purchase and how to use it. The following information will help you maximize your investment dollars to get the best possible deal when buying your property.

Discover the Top 15 Secrets of Successful Commercial Property Ownership!

2. Build Equity With Your Investment

Equity is Money

Building equity is the primary, if not the ultimate, reason to buy instead of rent a commercial property. Let’s face it. It’s money in the bank. It’s better than money in the bank because you can’t get the same kind of return on your money when it’s sitting in the bank instead of when you’re building equity. Moreover, suppose you choose the right financing for your commercial real estate purchase. In that case, you can build equity through ownership and leverage your capital savings to grow your business, hire additional employees, or even purchase a different location when the time comes.

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Owning beats renting because you can sell your investment once you outgrow the space or sell the business. Even if the commercial property in your area has not been appreciated (which is unlikely), you can recoup your investment by renting out space once you move out and selling when the time is right.

If you plan on growing into your building, buy something larger than your current needs and rent out the extra space until you need it for expansion. This will provide you with a steady income that you can use to help pay your mortgage or invest in your business.

3. Calculate Your Savings And Your Potential Profit

Lower Monthly Payments

Consider buying commercial real estate as a saving for your business. The third largest business expense is real estate costs, behind payroll and taxes. Long loan amortizations mean that your monthly payments could wind up less than what you would pay for rent since landlords usually charge more than their monthly loan payments. In other words, owning your commercial property may be more affordable, depending on current market conditions.

Real property search

Ask your lender to analyze the current market in your area so that you can see which scenario is best for you (renting or buying). The lender should explain your options in detail, providing examples of monthly rental costs vs. monthly loan payments and the benefits of each.

Analyze the Rent Value

Upon finding a property that piques your interest, determine the current tenants’ status (if it is a multi-tenant property) regarding how much rent they pay. Check the current market to see if the rents are undervalued, meaning below what you can get in the current market. Your realtor or lender should be able to help you figure out how much you could charge for rent and determine how much of a profit you can make each month.

Tax Advantages

There are many tax advantages to becoming an owner of a commercial property. In most cases, you can deduct part of the value of the building at tax time, as well as improvements you’ve made as depreciation, which can save you more money on your taxes. Buying the property under your business or corporation’s name is also a better tax strategy than your name.

4. Do Your Research

The more you learn about property types and options, mortgages, financing, zoning, and remodeling, the better you’ll make wise decisions concerning acquiring a commercial property.

However, you don’t have to know everything. That’s where putting together a powerful team of professionals proficient in their areas of expertise may be your most important step. Building a team of advisors – people you can trust to steer you in the right direction is critical to your success.

Understand Current Market Conditions

Keep your eyes open for news articles about the commercial real estate market. Is it “hot” right now? Is it a buyers’ or sellers’ market? What kinds of interest rates are available?

The Internet is a great place to start. For instance, a Google search for “commercial real estate market” will return results that include news and resources on national trends, analytics, and market research.

Many realtors, lenders, and lawyers worldwide offer free and timely articles on their websites that shed light on current commercial real estate trends nationwide. Again, make sure you listen to both sides of the story.

Tap Expert Resources

National market research companies can give you specific information about the area you’re preparing to locate your business. You can also find information on demographics, including the median age, household income, breakdown of ethnicities, and more from censuses available from the U.S. Census Bureau.

Also, contact commercial lenders or realtors for additional resources. When looking for help, it’s usually better to talk to a lender or realtor with nationwide experience and up-to-date information than a small-time operation that might not have recent data for you. If the lender/realtor hasn’t gotten updated demographics since 1996, you’ve essentially wasted your time. Also, a lender or realtor specializing in the type of property you’re looking for will be more likely to have the specific information you need, saving you time researching.

Study the Current Vacancy Rate

Research the vacancy rate over the past few years for the area you’re considering. If there seem to be high vacancies, try to find out why. Is it a bad neighborhood? Talk to store owners in the immediate area and find out how long they’ve been doing business there. Ask if they have any concerns that you should know about the area as a potential property owner.

Research Commercial Realtors

It’s important to research commercial realtors specializing in the type of space you want. Ask the realtor you are considering selecting about the entire purchase process so you know what to expect. Ask how long the process usually takes so there are no surprises. Check their references and track record (more on finding a Commercial Realtor in #5).

Examine Experienced Commercial Lenders

Choosing a lender and financing program is as important as choosing the property. Again, find out the entire financing process and your different options. Please don’t assume that using their financing is the best choice because you’ve had a relationship with your bank for years.

Banks don’t always offer the lowest commercial loan rates and sometimes have a far longer turnaround than non-bank lenders. Some banks require that you transfer your accounts to them to qualify for a loan. Be aware of any stipulations when seeking a bank for a commercial loan.

5. Choose the Right Commercial Realtor

As mentioned before, you need qualified partners to help you buy commercial property. Start with a terrific commercial realtor.

Some commercial realtors work exclusively with individuals interested in investment properties. Others work with owners/users of commercial real estate; some specialize in property management, which can add value to you.

Who Do You Know?

Referrals from trusted sources are usually the best way to find a good commercial realtor.

Ask Questions

Set up a meeting with more than one potential commercial realtor. Find out as much as possible about their professional background, education, and experience with your property type. You can ask for a list of recent transactions to give you an idea of what they deal with regularly and how many properties they’ve sold in the last year or two. And most importantly, ask for client references (testimonials)! Real client feedback is the most effective measure of potential success.

The Right Match

Make sure you choose a realtor that understands your specific needs. If you are a small business, you don’t want to work with a realtor that normally handles multi-million dollar deals. Your project may become less of a priority when that particular realtor gets a bigger commission.

6. Consider Your Time Frame

If you are looking for a commercial property because your lease is ending, think twice before jumping into a decision you might regret. Finding the right space, securing financing, and obtaining a commercial property can take months. If you don’t have that time, you may need to rent month-to-month for now.

Take Your Time

While you may be in a hurry to move into space, take your time. Buying any property is a major decision; purchasing commercial property is even more important for your business’s development and growth. Selecting a property in the wrong area or a space that doesn’t allow you to grow can hinder your company and even cause it to fail, so plan carefully.

Suppose the realtor or lender gives you an estimate of three months from start to close—plan for longer – just in case. Remember, many people are involved in buying property, from the seller, realtor, lender, appraiser, surveyor, paperwork approvers, secretaries, and more, and this process can often take slightly longer.

7. Location, Location, Location

One of the most important factors in considering commercial property is location. If a property is located on a busy corner that is difficult to get to, your business may not do well (in fact, that’s probably why the property is for sale). Suppose you want to operate a dog kennel, and the property you’re considering is residential; not only will your business disturb the residents. In that case, the zoning laws may prevent you from operating there.

Foot Traffic

For a retail business, look for high-foot-traffic areas that will give you the exposure and increased walk-ins you need to be successful.

If you are looking for an industrial or manufacturing facility, you can stay out of the retail limelight and buy something in a warehouse district. These areas are usually cheaper than retail space.

Easy Access

Make sure your location has easy access from the road. Look to see if the site is at a difficult intersection. Is there construction that seems like it won’t end anytime soon? On the other hand, what’s the potential once the building is completed?

Check out the Competition

If you want to open a restaurant in a neighborhood with several restaurants, you might want to try somewhere else with less competition. However, a healthy population of restaurants usually means a healthy population of customers.

Know Your Customer

Find out the demographics of the area you’re interested in. If you want to move your sports apparel shop to a new location, you’ll probably want a room with a high percentage of youth and active adults. An urban area with much pedestrian traffic might be better for this retail shop than a suburban area in a retirement community.

8. Free Parking

We’ve all spent time driving around and looking for a parking spot. It can be very frustrating, especially when you’re running late. Whenever possible, you want a location with ample parking for your visitors.
If you have a retail store, restaurant, or other high-traffic business, estimate how many customers or visitors you’ll likely have at any given time. Consider rejecting any properties with fewer available parking spaces than your estimates. Again, use your best judgment and consult your realtor.

Avoid Headaches

Also, pay attention to how your parking is situated. If it’s located just off a major road, it may provide a headache for people trying to back out of the parking space and even cause accidents. When visiting the property, see how well you can maneuver the parking. It will be doubly so for a potential customer or visitor if it’s a hassle for you.

9. Get in the Zone

Before you begin the commercial property negotiation process, investigate the zoning laws and what types of businesses you can operate there. Zoning laws govern the type of business that can be conducted in certain spaces.

For instance, some spaces do not permit food and beverage service or restrict a business’s operating hours. The typical zoning districts in most cities include residential, commercial, industrial, and mixed-use.

Don’t Assume

Zoning can be tricky, so do your due diligence on this topic. Don’t assume that just because the space’s previous tenant had a restaurant, the property you’re looking at is necessarily zoned for food and beverage. Many businesses slide under the radar for months or years while violating zoning laws. Making assumptions can cost you big time and big money regarding zoning.