Commercial real estate deals can be complex and involved. It is for this reason that these transactions often devolve into litigation. For the most part, though, such complication comes out of simple neglect. It isn’t difficult to successfully conclude a real estate deal. All it takes is a commitment to thoroughness.
Know what you want
Ask yourself the following questions before you begin looking for a property:
Does renting make more financial sense than buying?
Do you want to use the property for your business alone, or do you want to rent to other businesses, as well?
Would you be willing to partner with another business in the purchase?
Are you prepared for the credit rating requirements and the down payment requirements?
What is your tolerance for risk, should either your business or the property itself fail?
If you are to intelligently participate in conversations and negotiations to do with commercial real estate, you need to be willing to learn about the business. Certainly, you could rely on a dependable real estate agency to be your guide through the process. Nevertheless, according to leading title insurance service Eastern Title and Settlement of Rockville, MD, it’s critical that you be able to rely on your own smarts to some degree as you make your way through commercial real estate transactions.
You might start with important real estate terms such as loan-to-value (the part of the property’s value that the lenders will fund), capitalization rate (the ratio of the property’s earning capacity to its purchase value), vacancy rate (a figure that helps you determine renting potential) and ad valorem (a tax rate calculation method).
Build a team
Complex transactions that commercial property purchases tend to be, you’ll need an expert team on your side guiding you as you make your way. You’ll need to retain an accountant, a mortgage broker, a commercial real estate attorney and a realtor who specializes in commercial property. For large commercial property deals, teams often include environmental advisors, notaries, tax consultants, engineers and appraisers, as well.
Understand the financing
From your personal credit to the credit of your business and lending institutions most likely to lend to you, you’ll need to put in some research to prepare to apply for financing when the time comes. In many cases, the sellers may be willing to offer financing, as well, and you will need to make a proper business presentation to apply. Here, too, you’ll need to put in some learning of your own as you work together with your team.
Take your time looking around
Since location and property type are both important to business success, you need to take your time scouting. Not only do you need to look for the best possible location for your business, you need to put in some investigative effort determining the purposes to which each property on your list may be put, going by local zoning laws. You will need to learn about current use, rent potential, tax burden, fix-up costs and major changes expected in the neighborhood. A good choice of property also needs to make good business sense. It’s important to ensure that you can expect to be in the black each month once you account for principal, interest, tax and insurance (PITI).
Perform due diligence
Before you sign on anything that commits you to buying a location, it’s important that you first complete investigating the property. Order an American Land Title Association survey to learn about things such as improvements made in the past, boundary lines and easement access rights.
Don’t make these mistakes
If the purchase agreement requires that the seller complete improvements before the sale, it needs to be in the contract. The penalty for violations should be clearly stated, as well.
It’s important to make sure that the penalties imposed on you are reasonable ones, in the event that you need to back out of the deal at any point.
With commercial real estate deals, it’s critical that you go when with your eyes open. The environment tends to not be forgiving of mistakes.
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