Choosing to buy commercial real estate is a major decision. It’s a business action that could prove lucrative, but it’s also risky. If you don’t buy the right property, or if you buy it at the wrong time, then you could end up locked into a purchase agreement that lands you on rocky financial footing for a long time to come. That’s why as you start to think about buying commercial real estate you have to know how to protect your interests as fully as possible.
There are a lot of nuances you’ll have to navigate as you prepare to purchase commercial property. One of the most important is due diligence. Let’s look at this process, how it can help protect your interests and the key aspects of it that you’ll want to pay particularly close attention to moving forward.
What is commercial real estate due diligence?
Due diligence is the process of analyzing every aspect of a commercial property to ensure that you know what you’re getting out of the deal if you choose to proceed. In other words, it’s doing your research so that you can make a fully informed decision that’s right for you and your business. If you try to cut corners here, then you’re bound to set yourself up for failure.
There’s a lot that goes into commercial real estate due diligence. So much that it’s oftentimes hard to keep it all straight. But you have to be thorough here so that you protect your interests as fully as possible. Here are some key areas that’ll help you do that:
- Zoning restrictions: If you can’t use a commercial property as you see fit, then you’re going to wind up wasting a lot of money buying it. If you’re not careful, you could be stuck with existing zoning restrictions, thereby limiting what you can do with the property. So, be sure to understand how the property is currently zoned and your likelihood of successfully seeking rezoning or a variance if needed.
- Market competition: If you plan on leasing your commercial space to generate income, then you need to know what kind of competition you’re up against. If you’re entering a saturated market without knowing it, then you could be in a tough spot as far as generating leases and revenue. This, obviously, isn’t in your best interests.
- Current rental rates: By assessing existing leases on the property, you’ll gain a sense of what kind of revenue you can generate from the property. You can also see what terms are important to those who are leasing the premises. Overall, this will give you an idea of what you can and can’t get out of your lease agreements.
- Inspection and maintenance reports: It can be expensive to repair and maintain a commercial space, especially if you want it to suit your needs. By having a thorough inspection conducted, knowing what’s recently been repaired on the premises and understanding the costs associated with upkeep and needed repairs you’ll know how much of a financial obligation you’re stepping into.
Ensure you’re getting the most out of your commercial real estate transaction
There’s far more that goes into a successful commercial real estate transaction than what’s mentioned here. That’s why if you’re considering buying a commercial space you should be as thorough and comprehensive as possible. Only then can you rest assured that you’re making a decision that’s right for you and your business.