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What Does It Mean to Buy Commercial Property for Sale?

Published: 06-15-22 Category: Investing

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 commercial property for sale is a property meant to be used for business purposes as opposed to residential purposes.

This type of real estate is generally not used as a primary residence but instead used as an office, retail space, warehouse, or some other type of business use.

Finding a commercial property for sale will let you invest in the real estate market, but depending on your goals and risk appetite, there are some details you will want to understand before moving forward.

Let’s take a look at some of the different types of commercial property that are available for sale and their pros and cons.

What Are the Types of Commercial Property?

There are different types of commercial property for sale. These include:

Retail property;
Office property;
Industrial property;
Warehouse property;
Hotel properties.

Each of these types of commercial property for sale is unique in its own right, with pros and cons specific to the property type.

Buying Commercial Property Means Knowing Your “Why”...

When it comes to buying commercial property, there are a lot of things to consider.

Things like the cost and location of the property, whether or not you can get financing on it, and how much rent you think you can charge all come into play.

The most important question any potential investor needs to ask themselves is why they’re buying this property in the first place.

Buying commercial property isn’t something that just happens on its own; each investment needs a purpose and an end goal to be worth your time and money spent to find commercial property.

Some of the most common reasons why people buy commercial real estate are:

To make money: This is the most obvious reason to buy any commercial property for sale. The goal here is to make a profit off of rent and investment with greater cash flow.
To create jobs: If you live in an area where there’s a lot of unemployment, buying commercial property for sale and leasing it out to a business that adds to your economy can be a great way to help people find jobs.
To create value: If you find commercial property in older buildings or real estate and restoring them to their former state can add a lot of value to the property, both in its market price and in the eyes of the community.

If you’re thinking about how to find commercial property as an investment or even as a business venture, then understanding your “why” is key. Having a strong understanding of your “why” will help shape every other decision regarding that piece of real estate.

…Finding a Lender to Secure Financing…

Finding a lender to finance your purchase of commercial property for sale can be a challenge.

You need to consider several factors, including your personal financial situation and the type of property you want to buy.

There are several ways to find a lender:

You can talk with friends and family members who successfully financed a similar commercial property for sale.
You can contact local real estate agents and ask about their experience with financing commercial properties.
You can search online for lenders that specialize in financing commercial properties.

Once you have identified a few lenders and started to find commercial property you like, you will need to fill out an application and submit supporting documentation, such as bank statements and tax returns.

…Hiring the Right Professionals…

Finding a commercial real estate broker to find commercial property and who can help you navigate the commercial property market is vital because they can help you find the right property that matches your needs and will have the least amount of obstacles.

A commercial real estate broker can also help guide you through the process of starting to find commercial property.

A commercial real estate broker can help you to find commercial property and negotiate with the seller.

From there, you can hire several professionals to help you with your purchase. These professionals can include:

Lawyers;
Appraisers;
Inspectors;
Contractors;
CRE attorney;
Commercial real estate broker.

Each of these professionals has a different role to play in the process of buying and selling commercial property for sale.

…Searching for the Right Opportunity…

When searching for a commercial property for sale, there are a few things you should keep in mind. First and foremost is the location.

While most investors look for properties that are close to major highways or are in an area with high traffic, it’s also important to consider things like tenant demand and the local tax rate.

Ultimately, if you’re looking to buy a commercial property for sale as an investment, you should be sure that it fits your long-term financial goals — including being able to generate enough income to make it worth your while.

…Doing Your Due Diligence…

Before signing any legally binding document, it is important to verify that the seller and purchaser meet all legal requirements for the interaction.

You also must find a way to assess the property’s value.

This includes formulas such as:

Cost to rebuild property from nothing;
Value-based on recently sold properties;
Estimated income generated from property;
Value per apartment door by the number of units.

This list highlights some of the ways to assess the value of commercial property for sale but your commercial real estate broker or accountant might use other strategies, too.

…And Making the Best Offer Possible

When you approach the seller to negotiate the terms for commercial property for sale, it might be helpful to learn about negotiation tactics that can help.

This might include a letter of intent or a purchase and sale agreement drafted with the help of your commercial real estate broker.

A letter of intent is a non-binding agreement that provides the buyer with the seller’s intentions to sell a property. It is not a contract, but it does provide important information about the property to the buyer.

A purchase and sale agreement (or “PSA”) is a legally binding agreement between two parties that outlines the terms of a real estate transaction. I

t includes, among other things, the price to be paid for the property, who will be responsible for financing the sale and any contingencies, such as repairs.

A PSA is typically used in commercial real estate negotiations as a way to offer concessions to counterparties.

It is also used to set up a deadline for closing on the transaction and to outline what happens if one party backs out at any point during negotiations.

Despite Complexities, Buying Commercial Property Can Be Rewarding

If you are thinking about buying commercial property as an investment, be sure to do your homework first.

By doing due diligence before investing, you will have a much better chance of making it through the purchasing process with minimal problems and headaches.

You should also make sure that you surround yourself with a good team of professionals to help with the commercial property for sale.

This includes a commercial real estate broker, your accountant or CPA, and a lawyer that specializes in commercial real estate transactions.