Is Buying Commercial Real Estate a Good Investment?

Buying commercial real estate is a good way to increase your long term wealth.  Investing in commercial real estate gives you the potential to make more money than investing in residential real estate because the value of your property is based upon the income it generates as opposed to comparable properties used to determine the value of residential properties.  You can increase the value of your property by increasing your rental income.  Commercial real estate also gives you the opportunity for diversifying your investment portfolio with different commercial properties such as: 

• Apartment buildings
• Office buildings
• Retail stores
• Shopping centers
• Industrial Properties
• Mixed Use Properties   

Buying commercial real estate is complicated, and you should hire a commercial real estate attorney to review the agreements and due diligence documents to help you determine if a particular commercial property is the right investment opportunity for you.   

What to Look for When Buying Commercial Property?

The following factors should be considered when buying commercial real estate: 

• Is the property generating positive cash flow?  Avoid properties that you have to sink money into every month.  
• Use and zoning.   Is the property zoned for the type of business you are planning on conducting?  Are zoning variances required from the City?  If not, is your property grand fathered in?
• Building violations.  Does the history of the property indicate any building code violations?  If so, have they been corrected?
• Area demographics.  Is the area part of a redevelopment area? If so, the property value may appreciate quicker if it’s a hot and upcoming area.  
• Amount of space (sq. footage).  Do you have room to grow your business if you are going to use it as an owner occupied property? Will you be leasing out the excess space?  Are you buying the property as an investment and leasing it to a specific tenant or a number of tenants?  
• Location.  Is the property near public transaction and accessible to the freeway, other commercial property, and restaurants? 
• Parking.  Is there enough parking for customers and employees? 
• Building condition.  Does the building need any major repairs?  Do you need to make additions or alterations?  What are the costs associated with the repairs or additions? 

As part of your due diligence, you should also be reviewing the title documents and obtaining a survey and environmental reports.     

Using a Commercial Real Estate Attorney 

When you purchase commercial property, it is smart to use a commercial real estate attorney to represent you in the negotiations and review of the documents to make sure you are legally protected.  The attorney can help you with any zoning and land use problems or environmental issues as well.