7 Steps to Purchasing Commercial Real Estate Property in Austin, TX
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It is no longer news that commercial real estate is one of the most lucrative investment vehicles worldwide. Investing in real estate is a wise and excellent way to build wealth and diversify one’s portfolio. Commercial real estate investment in Austin, TX is known to produce some of the highest potential rental income across the country.
With abundant amount of commercial property for sale in Austin, purchasing either an office space or land to build a strip mall requires the input of commercial real estate professionals, even for a seasoned real estate investor. This article breaks down the steps involved in buying a commercial property in Austin, TX.
But before we delve into these steps, we must start with the basics of commercial real estate investing.
What is Commercial Real Estate?
Commercial real estate is a property that is leased for business and trade purposes. Investing in commercial real estate involves acquiring or developing properties to provide a workspace for commercial tenants.
Unlike residential real estate, commercial real estate owners lease out these buildings and collect rent (monthly or annually) from businesses that occupy spaces in their structure rather than from residential tenants. While we have been mentioning facilities when discussing commercial real estate, raw land purchased for commercial purposes can also be considered commercial real estate. Generally, commercial real estate is divided into six major classes.
Types of Commercial Real Estate
Before we dive into buying commercial real estate property in Austin, it is essential that you have a strong idea about the various types of commercial properties available for sale or even rent in Austin. This way, you can make the right choice of the commercial property asset class you want to purchase.
- Office Space
- Retail
- Industrial
- Multifamily
- Special Purpose
- Land for Development
Office Space
Office space for rent and office buildings are the most common type of commercial real estate, especially in the Austin metropolis. These commercial real estate asset classes may consist of a single-tenant office building, multi-stories, or even downtown high rises. Typically, these types of commercial properties for lease or sale, can contain up to 10,000 to 400,000 rentable square feet. And with companies like Oracle, Tesla, and Amazon looking to build factories in the Austin area, there is massive competition to lease office space; furthermore,traditional office spaces in Austin are categorized as A, B, and C.
- Class A are typically newly built, or recently renovated office buildings situated in a prime location with access to major modern amenities in Austin. Professional management companies usually manage office space that falls under the Class A classification.
- Class B are typically older buildings that require a bit of capital investment from interested buyers. While they may be currently well-maintained, they usually need minor improvements and repairs. Class B classifications are traditionally the go-to properties for new investors in Austin.
- Class C are typically poorly maintained buildings used for fix and flip purposes. Class C commercial real estate office spaces are usually situated in poor locations, requiring significant capital investment to either fix dilapidated structures or upgrade the building facilities.
Retail
Another significant type of commercial real estate asset class is retail buildings for lease or sale. These buildings range from strip malls, banks, restaurants, clothing stores, and community retail outlets and are often located in prime urban locations. Building’s housing big box stores like Best Buy and PetSmart are referred to as retail spaces and can extend from 5,000 square feet to 350,0000 square feet.
[Retail space for lease in Austin]Industrial
From small Flexible or R&D properties to large manufacturing warehouses, Industrial buildings are typically focused on manufacturing and storage industries as they boast massive spaces with height specifications. Investing in Industrial, commercial property involves leasing these spaces to manufacturing and production companies in return for an agreed-upon rental cost.
[Industrial space for sale in Austin]Multifamily
While residential real estate may include multifamily properties for sale, multifamily types may consist of anything larger than a fourplex for commercial real estate purposes. So, multifamily under the commercial real estate sense may consist of downtown high-rise apartment buildings for sale, condominiums, mobile home parks, and particular-purpose housing. As a first-time investor delving into multifamily as a commercial real estate investment in Austin, you should consider tenant turnover when making your purchase decision.
[Multifamily properties for rent in Austin]Special Purpose
In the world of commercial real estate for lease, particular-purpose properties are properties designed for specific use. Due to its structural design, it is challenging to repurpose these types of properties for another use. Self-storage facilities, car washes, hospitals, hotels, amusement parks, and even schools are examples of particular-purpose properties. Another rising asset class within the Austin area is mixed-use development properties. As downtown Austin continues to experience a growing economy, increased demand for office space with limited inventory, real estate developers have turned to mixed-use development properties like the Domain as a solution. A mixed-use property serves multiple housing purposes, such as retail spaces and residential apartment units within the same building.
Raw Land for Development
Buying raw or vacant land offers a multitude of options for investors and developers. When purchased at the right time, raw land can have a high return on investment in the right area. That is because land is a limited resource that developers need if they want to expand their businesses.
In addition, the land is often a more affordable investment than traditional commercial real estate properties. The maintenance costs are significantly lower than with conventional commercial real estate, meaning all you must do is purchase the land, hold the ground, and sell it to a developer for a profit when the time comes. This hands-off approach is one of the main benefits of investing in vacant land.
[Commercial land for sale in Austin]The 7 Steps to Purchasing a Commercial Real Estate Property in Austin, TX
Now that you know what commercial real estate is about and the various types of commercial property asset classes available in Austin, it is essential that you learn the basic steps to buying a commercial real estate property. This section will highlight seven (7) steps to purchasing a commercial real estate property in Austin, even as a first-time investor.
1. Understand Your Purpose for Investing in Commercial Real Estate
Start by asking yourself why I want to invest in commercial real estate in Austin? It is a salient question to ask yourself before reaching out to MyEListing to find commercial real estate properties available for sale in Austin, TX, for free.
Do you want an office building or multifamily buildings that you can rent out to commercial tenants in exchange for a monthly rental income? Or are you looking to purchase a commercial establishment for mixed-use purposes? That is, rent a part of the building for retail activities
and the other for residential purposes.Whatever your investment goals may be, you should identify the ‘why’ before investing in a commercial real estate property in Austin. Knowing the reason(s) behind your choice of investing in commercial real estate will guide you as you search for the correct type of asset.
2. Evaluate Your Investment Options
If you want to invest in commercial real estate, especially in Austin, TX, it helps that you understand the type of asset classes available for sale. Like we mentioned above, commercial real estate in the Austin area is usually of five significant styles. They include:
- Multifamily Structures
- Retail Space
- Office Buildings
- Industrial Buildings/Warehouses
- Special Purpose Property/Mixed-use Buildings
- Raw Land for Development
Before buying a commercial real estate property, you should decide on the type of property that suits your investment portfolio and goals. Ensure you carry out a proper comparative analysis of the location, potential returns, net operating income, demographics of your property, cap rate, and a vacancy rate of each asset class.
3. Secure Financing
Investing in commercial real estate, especially in a seller-based market like Austin, requires a lot of financial investment. So, before you start your search for a commercial property to buy in Austin, you should secure the necessary financing options ahead of the investigation. When looking to purchase commercial property with external financing, the first line of action is to check your credit. Depending on the mortgage type and lender, the credit score required of you may differ. It would be best if you considered reviewing your credit and making sure that the information in your credit reports is accurate and up to date. You can get a free copy of your credit report by signing up on Credit.com.
Once you verify that your credit report is accurate (you can dispute errors if you find any), take a closer look at the various types of financing options you might qualify. Depending on your credit score, commercial property type, and down payment, you might want to consider one of the following loan options:
- Apartment Loans or Conduit loans (Fannie Mae, Freddie Mac, and FHA)
- Bank Balance Sheet Loans
- Commercial Real Estate Loans
- Business Loans
- Hard Money Loans
- Seller Financing
Ensure to compare interest rates, repayment plan, additional fees, and other personal financial factors before opting for any of the above-listed loan options.
4. Choose the Right Team
Buying commercial real estate properties can be complex, even for seasoned investors. Before purchasing a property in Austin, you should surround yourself with the right team of real estate professionals to mitigate the risk involved. Below is a list of experts you will surely need to progress on your commercial real estate journey.
- Commercial Realtor
- Accountant
- Commercial Real Estate Attorney
- Commercial Lender or Mortgage Broker
- Tax Attorney
Before you start searching for potential commercial properties, it is wise that you have your team ready to swing into action. Getting the right help from the start will not only help you make the right purchase decision but will save you money and time in the long run.
5. Find the Right Property
Once you have identified your reason for investing, decided on your investment option, secured the right financing option, and have put together a team of experts, now is the time to get into the groove. At this point, you are ready to start shopping for commercial property in Austin. You can either get a local commercial realtor to search for available commercial properties on your behalf or search for free on MyEListing. One of the upsides to using MyEListing for your commercial property search in Austin is that it offers free demographic reports and free comp software.
When searching for commercial real estate property to invest in Austin, you must consider some crucial factors like usable square footage, location, access to modern facilities, and other statistics. You can take advantage of MyEListing free comp software when searching for a commercial real estate property in Austin, TX.
6. Do Your Due Diligence
When you finally find a commercial property that meets your investment goals, the next step is conducting what is known as due diligence. Your chosen local commercial realtor will be of great help at this point since they have local knowledge of the Austin area. However, it is also advisable that you do some personal research about the market and property yourself. Buying a commercial property involves a substantial financial commitment, so you must endeavor to conduct the necessary due diligence on the property to avoid buying a money pit.
Some questions you may want to ask, or research include:
- What has the property been used for in the past? (Do you intend to change the original purpose of the building?)
- Is it appropriately zoned to work with your new business purpose?
- What is the current annual rent or income generated from the property? Try as much as possible to get data to determine if there is a growing trend.
- What are the property taxes?
- Is the property in need of any major repairs? Getting an inspection officer to inspect the building will help you identify existing/potential structural issues with the property.
- Is the property situated in an ideal location or close to major social amenities? (If you hope to command great rental rates and attract a high appreciation rate, you should purchase a commercial property in a location that has less than 5% vacancy
- What does buying this property mean for your investment portfolio?
Remember buying a commercial property is quite different from purchasing a residential property, especially in a location like Austin. Making a wrong investment choice can have a drastic impact on your finances and personal goals. If you are a first-time commercial real estate investor, you should study enough resources and seek help from more experienced investors.
7. Present an Offer and Close the Deal
When you finally find the right property, it is time to present an offer. Typically, your chosen realtor will help with drafting the offer to purchase based on specific findings. Be prepared for the seller to ask for a deposit or earnest money (usually 1-2% of the property purchase price) when you go under contract.
However, in a seller-based market (high demand with less inventory) like Austin, you are bound to face bidding wars. So, you must hire a realtor with proven experience in negotiations. When going under contract, your offer must include a contingency clause. This allows you to back out from the deal with your earnest money deposit if certain things go wrong (like property failing inspection or issues with the zoning).
Furthermore, when purchasing a commercial property in Austin with external financing, your lender may request that you present an American Land Title Association (ALTA) survey as a requirement for closing on the deal. An ALTA provides detailed information about the property, including boundary lines, utility lines, easement, and other improvements within the property. If your lender accepts your ALTA survey and the rest of the due diligence (home inspection and appraisal), you can continue with the next set of steps towards the final closing. Your chosen local realtor and attorney should be able to guide you through the entire process.
Buying a Commercial Property in Austin: How MyEListing Can Help You
Finding the right commercial property available in Austin to buy or lease Office Space availability can be quite overwhelming due to the growing competition over the limited inventories. Over the years, MyEListing has become the go-to site for any real estate agent, buyer, or seller looking to list or find commercial real estate for free!
MyEListing also provides free demographic reports for all published listings and free comp software. This is driving thousands of users to our site and why we have tens of thousands of listings! With MyEListing, you can easily find commercial property for sale and other commercial property for sale in Austin.
Why don’t you sign up on MyEListing today to start listing and searching for commercial real estate property available for sale or lease in Austin, TX?
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