Purchasing commercial real estate is much different than purchasing a home. Continue reading for some wonderful tips to help you though the commercial real estate buying process.
Regardless of whether you are buying or selling, you should negotiate. Be sure that your voice is heard so that you can get yourself a fair price on the property you are dealing with.
Once you have narrowed your choices down to two major contenders, you should expand your decision to include the big picture. Getting adequate financing is very important in undertaking an investment that pertains to a ten or twenty unit apartment complex. Generally, this is much like the principle of buying in bulk; the more units you buy, the lower the price per unit.
Net Operating Income, or NOI, is one of the most important metrics used in commercial real estate. You must understand what it means, and how it’s used. Success means that your income outweighs your operating costs.
If you are purchasing commercial real estate for rental purposes, look for structures that are uncomplicated and sturdily built. These will attract potential tenants quickly because they know that these properties are well-cared for. Since these properties probably do not need many repairs, they will require less maintenance from the owner and tenants.
Make sure that the commercial property has access to all utilities needed. Your business has utility needs of its own, but you will also need water, electric, sewer and maybe even gas.
Take the neighborhood into account when purchasing commercial property. If you buy property in a very affluent area, your business will likely be successful, because your clientele will be better able to afford what you are selling. If the service you offer would appeal to less affluent people, you should not set up your business in an affluent neighborhood.
Advertise your property for sale locally and outside your region. Many sellers mistakenly assume that their property is only interesting to local buyers. There are many private investors who would purchase property outside of their local area if the price is right.
Take tours of the properties that are potential purchases. Definitely consider having a professional contractor go with you when looking at potential properties. Begin negotiating and the process of offers and counter offers. Prior to making any final decision, you should thoroughly go over the counteroffers you have received.
When viewing multiple properties, be sure to get a checklist from the tour site. Don’t go any further than 1st round proposal responses, unless you let the owners of the property know. Don’t hesitate to let it be known that you are entertaining other options. You might walk away with more money in your pocket.
Dual Agency
Before paying any agent, check his or her disclosures; these can tell you a great deal about the agent’s character and ability. Remember that dual agency is also an option. In this case, the real estate agency represents both sides of the transaction. In other words, the agency is working for both tenant and landlord simultaneously. It should be disclosed if there’s a dual agency, along with an agreement by both parties.
Consider any tax deductions you might get from your commercial real estate investment. Investors receive depreciation benefits as well as interest deductions. Yet sometimes investors receive what is called “phantom income”, and this is income which is taxed but isn’t received as cash. Knowledge of this aspect is important when you make an investment decision.
Check out the state of the environment around your property. It is your responsibility to clean up any environmental waste on your property. Do you want to buy property in a area that is prone to flooding? You may need to think again. Call some agencies that assess the enviornment and find out what is up with the area your property is in.
You need to do this to ensure that your profits match up to the previous owner’s figures. Without analyzing the key terms, you run the risk of finding a term that wasn’t considered within the rent roll, and this could cause changes to the pro forma.
You need to acknowledge that property has a limited lifespan. You will have to pay for repairs and maintenance for your property; make sure you have a good idea of how much you will have to spend. The property might need a more modern roof and electrical system. Every piece of commercial property needs maintenance sometimes; however, some buildings require more extensive or frequent repairs than others. It is important to formulate a long-term approach for managing these types of repairs.
Real Estate
As this article demonstrates, finding good opportunities in commercial real estate is dependent on many things. Remember what you have learned in the preceding article, and you will be able to get a good deal on a piece of real estate that meets your needs.