Buying Commercial Real Estate: Investment Protection Tips

If you are interested in buying commercial real estate, there are a number of considerations interested parties should be aware of before proceeding. Some of these not so readily apparent caveats to purchasing commercial real estate may eventually determine the overall profitability of an investment.

Mistakes to Avoid When Buying Commercial Real Estate

Every investment opportunity presents different obstacles to success, which can be mitigated in many situations through careful risk analysis. In many cases, first time investors in commercial real estate must consider the all important following factors before proceeding, including:

• Understand and appreciate the nature of your investment. Consider the length of the investment, will this be a short-term commercial real estate venture, or something with longer-term expectations. Adjust cost considerations and overhead requirements accordingly.
• Use experts to smooth the process of escrow, closing, and management of a property. Using legal teams, commercial real estate agents, and property management firms to facilitate the start-up of a commercial property may increase initial costs, but in the end, increases the viability of an investment at the onset, while reducing risks of novice mistakes.
• Understand the nature of lending, funding, and other financing used to purchase commercial real estate. As seen in many rental properties throughout the country, a lack of realistic financial expectations has left nearly millions of Americans mired in foreclosure and other financial struggles. Avoid repeating these mistakes by understanding the potential risks associated with any financing arrangement. On the other hand, investors should be realistic in the costs to start-up and manage a given commercial real estate property before viable returns on investment begin appearing.
• Learn the vacancy and absorption rate of a given commercial property and others in the surrounding area with similar demographics and tenants.
• Know the demographics of a given area, including access to major roads, average pedestrian traffic, and volume of visitors to surrounding properties.
• Get competent legal help surrounding contract negotiations and preparation, including items such as descriptions of the property and surrounding properties, the condition of the property, costs and other financial considerations, prorating of tax and utility expenses, type of title insurance or title evidence needed, and legal recourse noted in event of default.

Get Legal Advice Before Investing in Commercial Real Estate

Much like any other investment opportunity, a high level of due diligence, by both investors and outside experts hired by the investor, is required for any successful venture. Risk mitigation is a realistic goal, but requires both legal counsel and counsel from commercial real estate professionals, which may increase initial costs, but in the end, greatly mitigate risks.