Whether you’re considering buying a commercial property to serve as your business premises or you are an experienced real estate purchaser, you should perform due diligence before purchasing a building. Due diligence essentially means learning all the things you would reasonably want to know about the property before you agree to buy it. Then, you want to ensure you’re getting a good deal.
Here are six things to consider:
This is the aspect of the property that people focus on the most. Is the property in a low-crime area? What infrastructure is nearby? Highways or major arteries? The airport or railways? How available is parking in the area? What are the market trends in the area? How close are your competitors? You should also consider how the parcel is zoned and whether you would need any variances.
Classification of the building
How is the building classified? Industrial? Retail? Office-Warehouse? If it is an office, is it Class A, B or C? The answers to these questions can help you manage the overall risk of your investment.
The building’s condition
Whether brand new or decades old, most buildings will have an unexpected cost. That could be asbestos components, mold, plumbing issues or the need for a new roof. Even new buildings can be poorly designed or shoddily constructed. It’s best to get the building thoroughly inspected so you understand what you’re getting into.
Ideally, you want to be preapproved to buy. This depends in part on your personal and business credit scores, the type of building you’re interested in and what lender you are working with. You could qualify for a conventional mortgage, a bridge loan or a hard money loan. You might qualify for a 504 loan through the Small Business Administration, if you plan to borrow at least $350,000.
Commercial real estate purchasers are expected to put up about 1% of the purchase price in earnest money. This is not fully refundable if you back out of the deal, but usually is if the seller backs out. When the deal goes through, the earnest money is applied toward the purchase price.
What experts do you need?
In addition to a quality building inspector, you may need a commercial realtor and a mortgage broker. An attorney with experience in real estate law is essential. If you haven’t had an attorney involved from the beginning, you definitely need one before you sign a real estate agreement. You should have your agreement thoroughly reviewed to ensure it contains only terms you agreed to.