Academy Mortgage

BUYERS & SELLERS

Purchasing a commercial property

By Connie Sutton

Buying commercial real estate in the Four Corners region has the potential to be a lucrative investment. However, experienced investors should know it’s crucial to understand the ways that commercial properties differ from residential properties. Increased reward often comes with a higher purchase price and increased risk. In other words, buying commercial real estate will require more from an investor.

What Constitutes a Commercial Property?

Commercial property is defined as real estate specifically used for business purposes. This includes buildings such as plazas, malls, residential rental units and any property that generates profit. Types of Commercial Property

There are five different categories of commercial property. INDUSTRIAL

These spaces are usually factories, plants or warehouses used to manufacture and distribute goods. RETAIL

This includes malls, shopping centers and free-standing stores. HOSPITALITY

Hotels, motels and some forms of short-term rentals are included. MULTIFAMILY RESIDENTIAL

These are residential properties with five or more units such as apartment buildings. OFFICE SPACE

Professional properties are further categorized by classes A, B or C. Class A buildings present the lowest level of risk, while Class C buildings come with the highest level of risk. Buying commercial property

Buying a commercial property is similar to purchasing traditional real estate, but on a larger scale. Research and due diligence will still be required, and potential buyers can expect to be working with larger numbers. Along with higher purchase prices, commercial properties also come with longer leases and increased rental income.

Financing options

There are several types of commercial real estate loans including conventional mortgages, bridage loans, SBA 504 loans and hard money loans. The type of financing a buyer can secure will depend on personal and business credit scores, as well as the type of property. It’s a good idea to get pre-approved before looking at properties to determine a budget. Always compare interest rates, fees and repayment terms when shopping for financing options. Align yourself with the right people

Connect with the right professionals to help things go as smoothly as possible. Consider hiring a commercial real estate agent, a commercial real estate attorney and a certified personal accountant (CPA). The right team will increase the odds of securing financing and spotting potential problems in advance. Find the right property

When searching for the right property, remember to consider important factors, like usable square footage and location. Always keep the purpose for investing in mind, and don’t be distracted by a good deal. Look for a property that will realize the long-term goal. Make an offer and close the deal

After finding the right property, it’s time to make an offer. Be prepared for the seller to ask for earnest money, otherwise known as a deposit. Earnest money is typically around 1% of the purchase price, though depending on the desirability of the property it could be higher or lower. One of the most important factors is the due diligence period combined with a Contingency Clause. This is your escape hatch if things like zoning issues or inspection failure occur. Summary

Before investing in commercial real estate, carefully consider your personal goals as well as the process. Typically, it is important to remember that there is no reason to buy a property that won’t make you money. Remember that any investment — commercial real estate included — comes with risk. For this reason, it’s important to assemble a trustworthy team, and do everything to protect your assets.