Investor Checklist for Buying Commercial Space
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
A portfolio full of commercial properties is a happy workhorse, bringing fairly passive income around the clock.
But buying a new property is about following a set checklist. Systems get the mission accomplished, and if you haven’t built a checklist yet, this guide is right up your alley.
No bowling balls are required.
OK, now that all of the puns are out of the way, it’s time for a good investor checklist for buying commercial space.
#1 – Check Future Construction Plans
Man, there’s nothing more frustrating than a great location that gets congested. That doesn’t mean that construction is a bad thing, merely that there’s going to be a rather lengthy period of thorns before you get to the proverbial roses.
Seeing what’s coming down the pipeline is something that gets overlooked, but it’s a powerful part of buying commercial space.
Looking at development plans, construction plans from the local government, and upcoming projects all play a role in getting to know the market’s real ecosystem.
#2 – Make Due Diligence Great Again
There are lots of aspects of real estate that are intriguing and exciting, but due diligence really isn’t one of them.
Here are a few things that should absolutely be within the realm of due diligence during a deal:
- Regulations. Environmental sustainability, affordable housing, and local property trends all come together to create new challenges. Are you aware of the regulations that affect the building?
- Hunt for environmental contaminants early on, such as mold, lead, asbestos, and even old storage tanks.
- Double-check for easements, restrictions, and encumbrances on the property, even if you trust your professional team.
- A professional survey should be on the table, even if you think it has already been handled.
The quality of professionals ranges because the quality of humans ranges. Even seasoned investors can fall into the trap of being too trusting.
#3 – City Approvals Can Take Longer Than Expected
Double-checking permit timelines and other approvals that require local government can change the timeline for expansion projects.
Building permits are on their own timeline, and an administrative backlog can throw off plans in ways that aren’t always calculated.
Put this on your checklist. It doesn’t hurt to get to know people in the zoning and codes department of your local market because they can often address concerns or even give updates that are coming down the pipeline.
#4 – Check That Payment History
Sitting down with financials is like standing in the middle of the ocean right before a killer wave comes up to full strength.
If you aren’t anchored, you can get pulled under quickly. The world of real estate has plenty of moving pieces, but looking at the payment history of a commercial space when buying commercial space can reveal a lot more than meets the eye.
#5 – Is the Building ADA Compliant?
Accessibility isn’t a trend. Millions of Americans have some degree of disability, and accomodating them is important.
The Americans with Disabilities Act plays a big role in commercial real estate, as well as state-level regulations.
There’s even a checklist available from the United States Department of Justice Civil Rights Division that breaks down some of the expectations.
Buildings that aren’t quite accessible may take a lot less renovation work than meets the eye, and it can help a buyer of a newly acquired commercial property gain local attention and goodwill while providing something that people with disabilities also need and want to enjoy.
#6 – Investigate the Seller
Just as the seller is going to investigate you, it makes sense to have it on your checklist to dig a little deeper.
The world of social media makes it easier to learn more about people and companies. What type of track record do they have in the world of CRE?
This gets overlooked often even by seasoned investors because they’re chasing the numbers, but the reputation of a seller can cloud the post-transaction profitability. Is the seller known for not being fully transparent?
Even the best due diligence measures can’t always flush out a person that is playing unfairly all the time.
Put yourself in the shoes of the seller as well. The more you present yourself intent on understanding the property, the more they can reveal to help you decide.
An honorable seller wants you to dig deep because they would approach the situation the same way from the other side.
#7 – Investigate the Other Businesses in the Area
The business environment is an interesting world because most of it is more interconnected than meets the eye.
The pathway to getting things in order isn’t just looking at the commercial space you want to buy but looking at the overall harmony of the area. Do the businesses market together? Are there campaigns that make the area profitable for everyone?
The business community is dependent on partner businesses in ways that ensure that everyone wins, but only if everyone works together.
Just as you want to know your residential neighbors, knowing your commercial neighbors is pretty important. It can feel like a waste of time to reach out to extremely busy entrepreneurs, but it can help reveal things that you might not get to know otherwise.
Tying It Together With Real Action
Checklists get a bad rap these days. “They don’t work!” is the common refrain, but the truth is that they only work when you put in the time and effort to make them make sense for your own business journey.
All of the checklists in the world can’t help someone that’s stuck in paralysis by analysis.
Research isn’t king. Action is king. Plenty of would-be real estate legends stay tadpoles forever because they can’t be bothered to take action. You’re better than that, and your history of action shows that. You got this.
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