Buying Commercial Real Estate

Commercial real estate is considered one of the top investment opportunities in America, although it is not for investors who are afraid of taking risks. There is always a possibility that such an investment will never yield any income, so it is important to research a property thoroughly before laying down the cash.

Hire a Professional
When buying commercial real estate, it is imperative that you hire a real estate agent and a real estate attorney to help you close the deal. Unfortunately, unscrupulous lenders and dishonest sellers permeate the commercial real estate industry just like any other. To help you avoid signing a contract that you don't understand, an attorney can read through all documentation and advise you accordingly. If possible, try to work with the same professionals from beginning to end so they are familiar with your needs.

Know the Purpose
The tactics used when buying commercial real estate will depend heavily on what you plan to do with the property once you've bought it. For example, you will have different priorities if you are buying the property to house your business than if you are investing in a property that you will eventually lease out to corporate tenants.

If you are leasing, consider how much you can charge to businesses. If you can't charge sufficient rent to cover your overhead, the investment will inevitably fail. However, if you are buying commercial real estate for your own business, the data you want to consider is your monthly revenue. You should be able to pull in enough cash to cover your mortgage and other expenses. You should also compare the cost-effectiveness of buying commercial property versus renting it from someone else.

Applying for Commercial Real Estate Loans
Buying commercial real estate is never a risk-free transaction, regardless of how much research you do or how well you know the area. Markets fluctuate constantly, and unforeseen circumstances can always change how well you benefit from this type of investment.

Commercial real estate loans are much more difficult to secure than loans for personal property, mostly because these loans are usually much larger and carry greater chances for default. The lender might charge prepayment penalties and might have stronger consequences for late or missed payments. You should also make sure that no liens exist against commercial real estate property before you buy.

When you apply for commercial real estate loans, make sure you have all necessary information available so the loan officer can process your application quickly. Be prepared to disclose all financial records for you and for your business, as well as your business plan. Also be prepared to discuss the following issues:

  • Your ability to repay the loan based on current income.
  • How many loans and lines of credit are currently available to you.
  • Your marketing plan, either for your business or for acquiring tenants.
  • Whether you can maintain an acceptable level of net equity.

Avoiding Liability
When you buy commercial real estate, certain liabilities present themselves that could create nasty consequences for your business or investment. For example, if you are purchasing a manufacturing plant, service station, or any other property where hazardous waste is an issue, an environmental assessment is invaluable. This will tell you whether any area of the property presents a danger to tenants or workers.

Signing the Contract
According to, commercial real estate contracts are often "complex and lengthy," addressing as many eventualities as possible. Consequently, they can be difficult to understand and should be looked over by an attorney who can help identify potential problems.

The representations and warranties section of your commercial real estate contract is the most important. It outlines the facts about the property and guarantees that the property will remain in a certain condition for a specific period of time. In this section, you should find information relating to the condition of the premises, the zoning and land-use ordinances, the condition of any machinery or personal property included with the land and building, and anything else pertinent to the sale.

To Buy or Not to Buy
Anyone who buys commercial real estate on a regular basis will slip up now and again, but research and due diligence will ensure that you put your best foot forward. Make sure you work with professionals on every transaction, and ask as many questions as possible of the seller. This way, you will be less likely to take a loss on the purchase, and you may enjoy a profit.

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