Written by SVNGLL Managing Director Benjamin Graham, CCIM and Advisor Jerry Boyce.

So, you want to buy commercial property? We’re not surprised. Commercial real estate is a favorite among investors as it offers strong returns with relatively minimal risk. As experts in finding and brokering commercial property deals we get lots of calls from family and friends asking, “I would like to buy commercial property! I found this great asset and want to know if it’s a good deal and what the next steps are?”

We thought we would share the expert knowledge we provide them with you. Read below to learn the steps to evaluating, and completing, a successful investment in commercial real estate property.

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The 5 Steps to Buy Commercial Property

Understand the different types of commercial real estate

buy commercial propertyWhen looking to buy commercial property it’s important to first understand all of the different investment assets available on the market. Commercial properties may refer to: (For information on each, click the link)

Analyze the benefits of buying commercial real estate

There are many positive reasons to buy commercial property, but here are the biggest:

  1. Income potential – The annual return on the purchase price of a CRE property is 6 to 12% higher than a 1 to 4% return in residential real estate.
  2. Longer lease terms – The longer a tenant is in place, the longer it provides a steady income stream for the owner.
  3. Public eye – In retail investments tenants maintain their storefront, which has a direct effect on their business. When tenant and landlord interests become aligned it dramatically increases the value of the investment.
  4. Limited hours of operation – Most of the time business hours for commercial real estate tenants overlap with and investors work day resulting in fewer incidents from after hours activities.
  5. Hands off financial ownership – In a triple net lease (NNN) a tenant is responsible for all commercial property expenses directly, resulting in minimal ownership responsibility.

Analyze the risks of commercial real estate investment

No investment is without risk. Here are some drawbacks investors face when they buy commercial property:

  1. Tenant turnover – When an owner loses a commercial tenant and must find a new one, they may discover that expensive upgrades or repairs are necessary before a new tenant can move in.
  2. Larger initial investment – Purchasing commercial property requires more capital up front than with residential real estate.
  3. More risks – Properties intended for commercial use have more public visitors and therefore have more people on the property each day that can get hurt or do something to damage the property.

Examine your investment strategy with an expert

You should never lease or buy commercial property without first locating and retaining experts who can guide you through the complex process.

  1. Find an experienced commercial real estate Broker
  2. Find a local commercial real estate Attorney
  3. Hire a Certified Public Accountant (CPA)

Find optimal financing

Before you can buy commercial property you first need to locate optimal financing. Here are the steps you will need to take:

  1. Prepare a detailed income and expense analysis
  2. Select and form a relationship with a lender
  3. Have the commercial property inspected
  4. Obtain insurance quotes

Expert tips on buying commercial real estate

buy commercial propertyWhether you already invest or are ready to get in the game, here’s the best advice on how to buy commercial property straight from the Brokers who handle the deals.

Learn to recognize a good deal and a good investment property

The top commercial real estate pros know two things when they see it: a good deal and a good investment property. As far as a good deal, that comes from knowing the market, the players and having a solid exit strategy for when it’s time to walk away. They also know a good property by keeping a sharp eye during walkthroughs and properly assessing damage that requires repairs, knowing how to assess risk and making sure to break out the calculator to ensure that the property meets their financial goals.

Look for motivated sellers

Nothing will get you a better deal than finding sellers that are motivated to sell. Nothing happens in real estate until you find a deal, which is usually accompanied by…you guessed it…a motivated seller. This is someone with a pressing reason to sell, whether financially or circumstantially motivated. The most important aspect to remember about a motivated seller is: if they aren’t inclined to sell, they won’t be as willing to negotiate.

Know the market

An excellent way to evaluate whether to buy commercial property is to study the local market by spending time there driving the area and touring properties. There is simply no substitute for in-person, first-hand market experience talking with neighborhood owners, and looking for vacancies. No amount of online research will give you a better handle on what really is going on.

Build relationships

Finding and buying commercial real estate is not just about recognizing deals, motivated sellers and knowing the market. At the heart of taking action is basic human communication. It’s about building relationships and rapport with property owners, Brokers and other market participants so they feel comfortable talking about the good deals —and choosing to do business with you.

Looking to buy commercial property?

If you are seeking to invest you need to work with a Broker who knows how to find good properties, score good deals, and navigate local commercial markets. If you are seeking to buy commercial property in in the Capital Region or New Orleans area, contact the experts at SVN | Graham, Langlois & Legendre today to see how we can help you realize strong returns and maximum value.