Things to Know Before Investing in Commercial Real Estate
As a business owner, you may want to have more control over your fixed costs, build your net worth over the years, or use real estate as a way to save. It may then be wise to buy the space where you carry out your activities.
1. Compare with other premises
According to Mark Bastorous, in addition to forcing you to manage tenants and occupancy of your spaces, a commercial property with multiple premises will normally cost you more to maintain. For example, if you need to replace the cover, the work will probably be complicated and expensive. And instead of just paving your individual space, you’ll have to take care of the entire parking area. In your decision, you must therefore take into account the complexity inherent in a large multifunctional space.
2. You will need to have a business appraisal done
A commercial appraisal is much more thorough than a residential appraisal because the value is determined differently. “A commercial property is valued by its capitalization rate,” says Hunt. This is the rate of return the property is expected to generate. “In addition to looking at potential revenue, the appraiser will also consider replacement cost.
4. Submit a full environmental report
In certain sectors of activity, it is necessary to present a complete environmental report. In fact, this requirement may even apply if the activities of the previous owner or tenant may have harmed the environment.
3. Submit a building condition report
Depending on the age of the building you plan to buy, the mortgage lender may require you to submit a building condition report. Similar to a residential property inspection – but much more detailed – a commercial property inspection involves the use of an outside specialist.