Factors to Consider While Buying a Commercial Real Estate Property

If there’s one thing every investor or a businessman considers as a prerequisite for running their business in an organized manner so as to perpetuate their business in a right and progressive direction, it is the commercial real estate property that every businessman desires for. A dedicated real estate property or building for your business has advantages that are too obvious to be mentioned. An ideal commercial real estate property be it for a small, medium or large business just doesn’t need abundant space, but a lot of other amenities that could be used to set up all the facilities needed to regulate your business. However, with the available resources such as budget and other personal constraints, it is necessary to optimize the search for a suitable property that meets all the requirements to set up the business and accommodate the workforce. Commercial real estate was previously meant to be just owned and leased by a realtor but nowadays, it is being viewed as a long term asset that could be profitable in the long run and has successfully made its position as a contingency, backup or security. Being a businessman, it's always wise to know your requirements and your business needs so as to make an appropriate choice of the building where you can undertake your business with all the necessary facilities in the property to avail and utilize for proper management of business, workforce, and services that you want to provide your customers and clients with. Also, a well built and well-organized workplace will cater all your needs of hosting important guests, wooing investors with the organization and effective space utilization, employee satisfaction, brand image to name a few which, as a result, will help you market your company, build a reputation, promote services and pave the way for the possibility of expanding your business. Apart from that, a study suggests that an organization with a well-built infrastructure tends to have more employees who identify themselves with the location of their workplace and as a result, employee retention of the organization goes up. With so many critical pointers of the company being met without any extra expense and effort, your business is worth a well-built infrastructure bought with a planned approach.  Although, it is not at all a tedious task to find an ideal commercial property for your business given the real estate knowledge that the world is equipped with and with the help of its stakeholders i.e. qualified realtors who could give you prudent advice to proceed with the hunt of an ideal property to house your business in. However, there are some very generic factors that we want to mention that should be dealt with in order to make a sound decision to buy the property that is just right to set up your business. These indicators define the overall experience of hunting the right property for you while indicating as to what all factors should come into play while hunting the right commercial property for your business. These factors have been curated to describe every initial exercise that you need to undertake before hunting the right property for your business. Also, these points will give you a broad idea of knowing how to approach this property hunting aspect in a comprehensive manner.

1. Location supersedes all

 Choosing the right location is an absolute must for any business to thrive and branding is effortless and on top. A good location today might turn into a visited destination tomorrow. While choosing one, try to know about the businesses being operated in that area, as it would help you know the user base and all the prospects that you would come to explore once you start off your business there. You can also analyze the past trends of the business in the area to save time and effort of individually visiting the places. Also, know the distance of your property from the prime locations of the city to know where all and who all you will be serving. Choose a location where you can easily oscillate between end-user and supplies to ensure the smooth regulation of the business. Also know if the location is ideal in terms of logistics so that you can easily avail of transportation facilities be it road, rail, and water. However, if you are into a business that requires you to meet or visit clients remotely, it is preferable to go for a location that lies outside the town for a cost-effective approach. Also, if you want to rent a property for your business, look for a location where vacancy is a bit more than 5%. This would ensure that supply is regulated and tenants are more likely to vacate which means lesser rents and lower capital appreciation which will save you a lot of bucks and make it more accessible and possible for you to afford your dream workplace. 

2. Do your homework

Before choosing a commercial property for your business, an analytic approach backed by strong research is required. Visit the websites where properties are listed and choose from a lot of options with well-furnished information about them on the internet. You must also visit properties to know what works for you there and what doesn’t. This also helps to know the issues over there firsthand and makes you aware of all that you have to do by yourself over that property once you set up your business over there. Again, the importance of locations can’t be emphasized enough. An ideal location will have close proximity from universities, hospitals or areas downtown to help support your regulation of the business easily. Since the situation and needs of your business are unique, it is inevitable that you would have to customize the organization and setup according to the architecture of the building. This should be anticipated and the buildings or properties must be customizable to meet your needs of proper setup. Also, look for the long term predictions of the location chosen to know if the property value is going to go up or is it going to hinder in the coming future? This could define if the property value is going to be profitable for you and if the location is economically feasible as a decline in the value of the property could lead to a decrease in your business capital which may turn out to be a distress. While visiting the location, consider the factors including price, condition of the location and all legal documentation as well as permissions from the authorities. The Internet will surely boost the hunting process of the property comparatively easier as it will also help you learn the vocabulary that would help you be equipped with the know-how of the dealing and the negotiation. Always remember, time spent on the research of the perfect location of your business is never time wasted. 

 3. Reckon your budget 

This is important because it includes financing, the money which is going to be spent out of your pocket to buy that dream property. An activity that needs investment needs proper budget planning before execution. For the investor, It is really important to lay a planned budget allocation to the property that he wants to buy and the business transaction that he would need in the future to setup his business. This eases the process of property selection as you come up with a narrow range of choices you can choose from which fit your budget. However, if you don’t have the entire amount at the time of payment you can pay a small down payment and borrow the rest of the money on a mortgage. Also, there are a lot of things that would need financing apart from buying the property such as furniture, offices, construction of the building, renovation, etc. The amount for all these things should be kept as a contingency so that you don’t suffer financial crunch later when you are about to setup your business. It is really important to consider regulating, upkeep and ongoing costs which are inevitably going to incur on you. Remember, having some extra money in the bank will surely help you to encounter any problems you may come across along the way. However, if you want to keep a bigger amount for your business and want to avoid paying the whole of the amount upfront, you can always go for different affordable mortgage options or apply for a loan in the bank. Property loans do not require much hassle and you can get through if all the bank’s criteria are met. Also, if traditional financing methods don’t work for you, work up a more for any creative options that you can think of paying the amount to the owner of the property. So, the importance of budget can never be underestimated or compromised for anything else as financing is something that would stand as a pillar to support all your endeavors in the future and if invested right will reap you sweet fruits. 

 4. Make an offer first

Once you draft an agreement, get a trustworthy lawyer to review it who then furnishes a Letter of Intent(LOI) about the property and all the contracts involved. This LOI is outlined with the basic terms of the transaction. The lawyer also makes sure that the Letter of Intent is not binding in case anything goes wrong with the agreement at a later stage. Also, have your lawyer explain all the details regarding the contract and all the details related to the written agreement so that it can be understood and agreed upon by both the parties involved in the agreement. It is absolutely upon your discretion to be cautious about each and every detail in the agreement before signing anything off. If everything turns out to be fine and mutually agreed upon and proceed with all the other legal obligations involved while buying a commercial real estate property

 5.Due Diligence and Escrow

Before buying a property, you are given a due diligence time period within which you have to make sure that all the documentation such as service or utility contracts, surveys, environment reports, rent rolls, covenants, restrictions or any other aspect of the legal documents that you might want to be acquainted with. This is like a triple check as you can verify that the seller hasn’t lied about anything in the agreement. You’ll need to find a legal counsel survey ordered which can be used as a part of the due diligence process. This survey provides valuable information such as the location of the main building, boundary lines, location of secondary buildings and identifying easements such as water, gas, telephone, railways and other utilities. If anything strange or wrong comes up during this survey that isn’t stated in the agreement, you can always ask your escrow officer to cancel the agreement and have the resources revoked. Now, being in escrow is a contractual arrangement in which a third party (the stakeholder or escrow agent) receives and disburses money or property for the primary transacting parties, most generally, used with plentiful terms that conduct the rightful actions that follow. It is undertaken by an escrow officer that you and the seller would need to find who will be a neutral 3rd party who is going to oversee the transactions. He will also help you transfer the deeds and the funds and is responsible for protecting both the parties in terms of the transaction. The final closing escrow documents are then prepared that includes quitclaim deed, non-foreign affidavit, title affidavit, bill of sale, sale, and assignment of contracts, warranties and supplier guarantees. This certifies and shows the green flag for the transaction to take place between both parties and close the deal. This step is absolutely important as it assures that you would not be facing any unknown problems in the future.

In the end, it is a dream for every businessman to have his own workplace where his business can thrive and he takes control of all the ongoing processes. However, proper analysis, research, and an attentive approach will definitely help you acquire a property that would fit your business needs.


#1 By Yesi Merino at 3/24/2020 1:41 PM

Great blog! Thank you for the wonderful tips on factors to consider while buying a commercial real estate property.

Post a Comment