Your Step-By-Step Guide to Buying Your First Commercial Property in Durham
Buying commercial property is one of the best business investments you can make. As with any investment, there's an upfront cost. However, real estate values (commercial or residential) typically increase with time.
If you properly manage, maintain, and update your property, it will continue to make money for you. You can also sell it for profit down the road.
But how do you get started investing in commercial real estate? Is there anything you need to know in advance?
We're here to answer your questions. Keep reading for a step-by-step guide on how to buy commercial property.
1. Define Your Professional Goals
Before you start looking for commercial property for sale, you need to understand your motivation. Why are you buying a commercial property? Is it for your own business or do you plan to rent to other business owners?
Furthermore, what is commercial property? What are your options for investing?
Commercial properties include the following buildings:
Office
Industrial
Warehouses
Malls
Apartments
Retail
And more
Identify your professional goals to decide which type of building is right for your investment.
2. Determine Your Budget
Once you understand your goals, you can start the process of shopping for commercial property. Your first step is to get pre-approved for a loan. Getting pre-approved helps you determine your budget.
How much money can you get approved for? What loan terms and interest rates are you qualified for?
If you don't like your current eligibility status, consider spending a few months building up your credit score. Then, you can reapply for the loan with better terms and conditions.
Finally, make sure you choose a loan that you can comfortably afford to pay each month. The goal of any commercial property investment is to improve your financial picture, not make it worse.
And remember, just like residential properties, commercial properties have expenses outside of your loan payments. You also have to consider:
Utilities
Property Taxes
Maintenance, repairs, updates, and renovations
Common area maintenance (landscaping, snow removal, etc.)
Insurance
And more
Start small if you must and grow into your success. This is preferable to starting large and hoping your success grows into your costs.
3. Hire a Commercial Real Estate Team
For the best success when investing in commercial property, get a professional team to help you. At the very least, you need a commercial real estate agent who's familiar with the local properties, neighborhoods, and businesses. They can help you find the right property based on your professional goals and budget.
You should also consider hiring a commercial real estate attorney. When it comes time to sign documents and commit yourself to a property, you need to make sure you know what you're signing. A commercial real estate attorney can review the seller's contract to make sure both parties are getting a fair deal.
If you are financing your purchase with a loan, you will need a reliable and flexible commercial loan officer who will assess your ability to borrow money for a commercial purchase based on its potential cash flow, your debts, income, liquidity, reserves, and overall creditworthiness.
Finally, as noted earlier, there are several expenses involved in a commercial real estate investment. It might be a good idea to hire a tax accountant to look over your finances. They can look at your budget and the potential costs of the property to make sure you afford the investment and assess the tax burdens associated with it. There is no substitute for good tax advice.
4. Identify the Right Location
Now that you know your budget and have a powerful team behind you, it's time to start shopping. Finding the right commercial property for sale means searching in the right neighborhood.
After all, the perfect building in the wrong location could leave your investment dead in the water. You need to find a location that's ideal for your business goals.
For example, if you're looking for a commercial property for a business, you need to be looking in a busy part of town that receives plenty of foot and vehicle traffic. If you're interested in residential rental units, you need to find a safe, appealing neighborhood, or one that cash flows well as is.
5. Find the Right Property
Once you've narrowed down your field of search, you can start looking for the right property. Make a list of priorities that must be met for you to invest, whether it's for your own business or property you plan to rent to others.
Is it in your price range? Does it need any major repairs or renovations? How soon can it be ready for your desired purposes?
Understand the Property's History
Finding the right building is great, but before you buy commercial property, you must do a little homework to learn more about its history. You should know:
How long the property has been on the market
What previous rent prices have been
What the building has been used for in the past
What the building is zoned for
What the yearly property taxes are
How much commercial property insurance will cost
Why is the seller selling?
And more
Your real estate agent should be able to help you obtain the information you need.
6. Get a Property Inspection
When you find the right building, you have one more step before you're ready to make an offer. You need to hire a commercial real estate property inspector. They will thoroughly inspect the property to verify its condition.
An inspector will assess the condition of the fundamental aspects of the commercial property. These include:
Structural integrity
Roofing
Foundation
Plumbing
Electrical
Heating and Cooling
Cosmetic damages
Mold presence
And more
The resulting inspection results will help you decide what to do moving forward.
7. Make an Offer and Negotiate with the Seller
With the property inspection report in hand, you are ready to make an offer to the seller. Use the counsel of your real estate agent and other team members to guide you in the process.
If there are any major issues with the building you can do one of three things.
You can make an offer based on the seller making the necessary repairs. You can make a lower offer and assume the building with the existing issues. Or, you can walk away and find a different property.
Ready to Invest in Commercial Property?
Have you been thinking about getting into commercial real estate investing? If so, now is a great time to buy your first commercial property.
We want to help. Contact us today to schedule an appointment with an experienced real estate agent. Let's work together to start building your commercial real estate success.