Buying commercial property is a very good long term
investment as long as you know what you are doing. Otherwise it can also be a huge financial
disaster. If you do not want to make a
mistake that you will regret for years to come, you may want to follow these
tips on how to protect yourself and your investment:
- Education. If you are a new commercial real estate
investor, educate yourself as much as you can by working with a mentor. To
start, only invest in one specific type of commercial real estate. Once you
become knowledgeable and are confident, you can look into different investment
Approval. Get pre-approved for your financing so you know how
much to spend on your commercial property investment and to avoid unnecessary
delays when you find a good deal.
- Partnership. Partner with another investor,
friend, family member or business associate if you don’t have a lot of cash for
a down payment. Join an investment club so you can meet other investors with
similar investment interests.
Tax Consequences. Form a holding
company for tax purposes to hold the real estate. Check with your tax advisor as to which type
of entity you should use, such as corporation, LLC or partnership.
- Appraisal. It is important to review your appraisal
carefully to determine the value of your property to make sure you are not
paying too much for the property.
- Inspections. Read your inspection report and pest control
report carefully. Be sure to go over any items that you have a question about
with the inspectors. If there is any structural damage or major repair work
that needs to be done, this means your investment costs are going to be higher
and it will take longer to recoup them.
- Due Diligence. Do your homework by checking the commercial lease agreement terms, the zoning, the
property history, and any environmental issues as well as permits you may need
if you are planning on remodeling. Zoning
is important because you need to make sure that the property is zoned for your
intended use. Environmental issues such
as a leaking underground tanks,
toxic spills, or toxic waste sites can contaminate ground water, soil and air
quality and expensive to clean up. Many lenders require environmental reports
before they will loan on commercial property. You should order a report
whenever necessary, or if you have any concerns. They are expensive, but well
worth your peace of mind.
When you invest in commercial real estate, you take on the responsibility
for repairs and legal issues such as environmental cleanup. That is why it is
important to do your due diligence, read all your inspection and appraisal
reports and ask questions. You should
also consult a real estate attorney.