What to Consider when Buying Commercial Real Estate

Buying commercial real estate means you are buying an office building, retail business, shopping center, gas station, restaurant, apartment building, industrial warehouse or other type of income generating business property.  When you are buying commercial real estate, you should work with a commercial real estate broker to help you find the right property.  There are several factors you should consider when you purchase commercial property: 

• Price. Commercial real estate is valued on the usable sq. footage.
• Location.  In general, the location should be accessible to freeways and public transportation, restaurants and other commercial and retail establishments.   
• Intended Use.   Be sure to do your due diligence, check zoning and review all title documents and deeds to make sure there are no use restrictions on the property.
• Amount of Space.  Figure in extra space for growth.  You can always rent out the additional space until you need it.
• Parking.  You want to make sure you buy a property that has parking available for customers and employees.
• How you intend to pay for the property. Financing or cash. If you are getting a mortgage, you must use a lender that offers commercial loans.   

Advantages and Disadvantages

Owning commercial real estate makes more sense than throwing money away every month to someone else.  You should consider the advantages and disadvantages of owning commercial real estate before you buy.  It’s a good idea to speak to a commercial estate attorney and tax professional. 

Advantages include the following: 

• Appreciation
• Depreciation
• Building long term wealth
• Rental income
• Tax benefits 

 Disadvantages include the following: 

• Initial capital expense
• Mortgage liability
• Legal requirements
• Risks
• Public health and safety compliance  

Due Diligence 

You should do your due diligence.  Check prices. Look at demographics.  Be sure to always have a property inspection, review title documents and obtain a survey.  If applicable, obtain environmental reports, especially if you are purchasing a business like a gas station or other industrial property.  If any hazardous materials are located on your property and getting into the ground water or environment, you could be legally responsible for cleanup imposed by governmental agencies, even if they were caused by prior owners.

Speak to an Attorney

It is recommended that you speak with a commercial real estate attorney who can prepare and review your purchase and sale agreement, title documents and other due diligence documents in connection with the purchase of your property.  The attorney can assist you with zoning or other issues that may arise.  A commercial real estate attorney can also help you with negotiations with the seller and represent you in any disputes that may arise under the terms of the purchase and sale contract.