Buying commercial property can be an excellent investment because the income opportunities are immense. The right deal can leave you with a valuable asset that you can rent to businesses every month, creating an income stream as its value appreciates.
Commercial real estate investments aren’t for everyone, though, because they take a lot of research and significant capital to get off the ground. There’s also risk involved, especially if you don’t negotiate a deal that works for you.
The good news is that you can follow a template that will help you find the ideal commercial property to purchase and add it to your portfolio. This guide will take you through the steps involved in buying commercial property and the types available.
Types of Commercial Property to Buy
There are several commercial property types to consider, each of which will provide different income opportunities. Learning a bit about your options before narrowing down your search can make the process far more straightforward.
Multifamily
Any residential property with multiple units is considered a multifamily commercial building. These properties can include anything from a two-unit duplex to a massive apartment complex with hundreds of units. Investing in these buildings makes you a residential landlord of sorts, but on a much larger scale.
Retail
Retail buildings are anything that sells services or products. You could invest in a major mall or a small corner store near your house, depending on how much capital you wish to put up.
Office
Office buildings come in many different forms, including large buildings that host dozens or even hundreds of businesses and converted homes that are commercially zoned.
Hospitality
The hospitality industry has to do with hotels, resorts, restaurants, bars, and the like. The success of these properties as an investment is often location-dependent, and lessees are sometimes reliant on out-of-town visitors to make money.
Industrial
Investing in an industrial property means putting money into warehouses, distribution centers, and factories. These buildings are generally quite large but don’t require the same upkeep and amenities as office, retail, and hospitality buildings.
Your investment portfolio might include multiple commercial property types, depending on your goals. Consider all avenues and do your research to ensure you end up with the best options to meet your needs.
7 Steps to Buying Commercial Property
Deciding on the type of building to invest in is just part of the process when buying commercial property. The following steps involve narrowing your selection down and ensuring you’re making the right decision as you complete your purchase.
1. Confirm Your Motivations
Figuring out why you’re investing in commercial property in the first place should be your first step. Answering this question will help you determine which types of properties to begin looking at and guide you to the right opportunity. A large property has more appreciation potential, for example, while a smaller one requires less upfront investment to get your foot in the door.
2. Line Up Financing
You’ll want to make sure you can pay for your investment before you begin your search. Securing financing ahead of time allows you to create a budget and gives you time to compare your financing options before you have a deal on the table. Speak with multiple lenders and consider different loan types to find the best rates.
3. Create an Investment Strategy
How big do you want to go? Is this a long-term or short-term investment for you? Coming up with a strategy allows you to narrow your list of potential investment properties, making the entire process more manageable.
4. Identify a Property
There could be hundreds of potential commercial real estate investments in your area, so you’ll have to put some time in and identify a few that attract your interest. You might want a bit of assistance during this step, as investment service providers can help with your new investment search by showing you properties that meet your parameters.
5. Conduct the Research
Researching your narrowed list of properties is one of the most critical steps in this process. This point is where you’ll run cost comparisons between the investments you’re considering and schedule tours to visit them. You’ll also want to ask questions on zoning, past uses, annual income, the neighborhood, potential repairs, renovation costs, and property taxes before continuing.
6. Begin Negotiations
The negotiating process often starts when you make an offer to the current owner. It’s a good idea to have a professional involved in this part of the deal because you’ll need a complex write-up of terms and conditions the seller will have to meet. You can also seek concessions during the negotiation process if you feel like the property needs improvements before you take possession.
7. Finalize the Deal
You can finalize the deal once you’re satisfied with the property and that the seller is meeting your conditions. The work doesn’t stop there, though, because you’ll need to efficiently manage the property to ensure you have money coming in from renters every month and that it appreciates in value moving forward.
Carefully following these steps puts you in a better position when buying commercial property and makes it more likely you’ll benefit from this investment. The keys are to carefully seek out a suitable building and negotiate a deal that makes sense for your business plan moving forward.
The Professional Help You Need When Buying Commercial Property
A lot goes into identifying a property to buy because these deals usually involve a massive amount of money. There’s a significant risk when buying commercial property, so you’ll want the right team on your side to ensure you don’t make any mistakes.
The Genau Group offers commercial real estate services in Washington, D.C., and its surrounding area. Our team can help you develop an investment strategy, search for properties to buy, analyze the deal, acquire concessions, and negotiate the terms, helping you identify the appropriate options to meet your goals. Contact our CRE pros today for more information on our services.
