How to purchase a commercial real estate

Buying real estate is always a complicated endeavor. When you have a business, then buying a commercial real estate is even more complicated. With a lot of questions and risks tied to making that decision, it all becomes confusing. So, how to purchase a commercial real estate, what would the guidelines be?

The property issues

Many businesses in their lifetime come to a point when they are forced to make a decision concerning their property. The question becomes to lease or to buy and own. Both options have their merit and both can seem to be the right and rational choice. It all gets even more complicated when the owner widens the scope of factors he/she takes into consideration. The real estate market also has its ups and downs that make it difficult to make a sound decision. So, what would be the right way of going about making this decision? What is important to know and learn prior to deciding to relocate your business anywhere in the USA?

Old school production facility.
Finding a commercial real estate is a complicated process and it requires time.

The main concern and why to buy

The main problem is to make the right prediction of the market in the future that will allow the maximization of investment value. Making those predictions is troublesome even for investment professionals. It’s even harder for the entrepreneurs that are not in the real estate business. It’s a risky decision because all of the actors can suffer great losses. Everyone from the buyer, seller, to the agents are at risk from the downward trend of both the real estate and the business’s own market. The benefits can also be great but the risks can have dire consequences.

Although, there is no universal recipe for every company on whether to buy or lease, there are some factors and reasons to consider. One of the most important is the cost and control of your own property. The company that owns property can protect itself from the skyrocketing rental costs that can disrupt its normal business. At the same time, the company can benefit from the lower taxes (in case of property depreciation) and on the other side from the increased value of the property in the long run. Each company must weigh its own factors to reach a rational decision.

Some of the risks to be taken into account

Wrong location. The poor choice of location can cause a negative effect on the company. A neighborhood that is of interest may become unlivable or simply unattractive to consumers. Poor positioning in regards to the market can cause a decrease in sales and a lack of income.

The company can have a liquidity problem. It may happen if the company ties up a lot of money into a real-estate. In that case, the companies will have a hard time servicing their obligations. In a bad property market, it may not have the opportunity of selling that property to acquire liquid assets.  

Unexpected expenses in property maintenance and up-keeping. In those cases, cash flow may be considerably disrupted especially if the owner has not been on track with the eventual problems of his property

Modern looking production hall.
You must find a suitable commercial real estate for purchase

How to make a decision

Making a decision is ultimately down to economics. It’s important to weigh in all of the influencing factors and try to do it objectively. In these cases, it’s important to engage a team of experts that can shed light on all of the unknown issues that may arise. The team should have:

  • a lawyer
  • an accountant.
  • a commercial broker.
  • a mortgage broker. 

These experts should be able to peace up a rational picture of the business in the foreseeable future, the real estate market, the scenarios that will develop further on. One of the most important things is to create a real forecast of where the company’s growth in the foreseeable future in order to make a sound decision on the needs. This will help determine the type and size of the real estate the company will need. The experts will also shed light on the choice of leasing versus buying trough their cost, tax and price, and market trend analysis. They are invaluable in choosing the location, closing the deal, determining the time to buy or sell, how or whether to purchase the real estate at all. 

What to consider when you want to purchase a commercial real estate

If you are thinking of buying a property, the number of factors to consider is staggering. When it comes to buying a commercial property, their number is even greater. There is no definite list and maybe it is impossible to make one but some of the main factors to consider may be:

The location of commercial property can be crucial for investments and even the company’s success. The company should be close and accessible to its customers and the market. Depending on the business, it can be relative (when we take into account IT and online marketing and sales) or it can be very important. Some businesses even require proximity to rail and highways to function properly.

The condition of the real estate is also critical. Rundown property can be very expensive to put to use. If you count the environmental issues that may have to be addressed (asbestos, led paint) it can become even more expensive and unusable

The potential use of real estate can be a limiting factor when deciding to purchase. Some consultancy and service companies may require only office space. Manufacturing companies require industrial space and, in addition, storage space. The question then becomes if the property regulations allow for the property to be used the way the buyer needs it.

The real estate may also have other restrictions that may prevent it from being adapted and put to use by the buyer. Some buildings are considered to be historical monuments that can not be changed to accommodate certain uses.

A modern office with a long table and a lot of chairs, something to wish for when you need to buy commercial real estate.
Besides your requirements its good to look into the possibility of subleasing the unneeded space

Potential for leasing and expanding is also important. Young, developing companies that are buying property must be sure that they will have enough space to expand their operation in the future. On the other hand, they must be sure to have the option of subletting the property or its part in the case they don’t have the desired growth. 

Expert help on how to purchase commercial real estate

After you decide on the property you want to purchase its important to reevaluate your goals and objectives and analyze if the property will help you achieve them. Hiring professional help like can be very beneficial and can save money in the long run. It’s important to engage your team of experts to help with the analysis.

The real estate agent will hire engineers, appraisers and other experts to make sure that the property is sound and without any issues. They will also conclude if there is room to grow and expand the space if needed. This is also important if you need to renegotiate the price of the property.

The next step is to close the financial construction. Banks can offer tempting financing solutions to SMEs and entrepreneurs but they can be out of reach. In those cases, it’s important to have adequate cash reserves, good credit rating and sufficient profits to acquire other sources of funding.

Finally, the accountant and attorney will have to iron out the contract in as much detail as possible to make it airtight. The contract should protect the buyer in the best possible way by clarifying all of the questions and issues that may arise in the future.

In conclusion

The purchase of commercial real estate is a major decision for any company. Those who are considering to buy such a property should analyze the options in detail and clarify any issues. It is important to first double-check if the property is right for the business in the long-run. The wrong decision may be lethal to a small business so the investment in an expert team is crucial. These decisions take time and precise analysis so expert help is important.