Everything You Need to Know Before Owning Commercial Real Estate

If you’re interested in moving your business investments from residential to commercial real estate and diversifying your portfolio with a new property, you may be wondering how you can navigate the process smoothly. While purchasing a commercial property has some similarities with purchasing residential spaces, there are some key differences, which can seem complex or even confusing if you’re unfamiliar with the process. The good news is, a little preparation goes a long way. Here are a few foundational facts that can help you start your commercial property ownership journey with confidence.

Define Your Expectations

Before you can get started on your property buying journey, you need to make a list of everything you’re looking for and define your expectations. This can help narrow down your options and reduce the amount of time you spend searching for a property. Key questions to ask yourself include the location you want, the purpose you plan to use the property for, how much of a down payment you’re able to put in, whether you’re willing to spend time and money on renovations, whether you plan to hire a property manager and so on.

Consider Multiple Properties Before Making an Offer

While it may be tempting to make an offer on the first property you like, consider touring a wide range of places before putting an offer on the table. Because buying a commercial property is a big investment, you don’t want to miss out on a potentially better location or price just because you rushed into your purchasing decision. Location, age, allowed uses, and the condition is important factors to consider.

Learn the Lingo

Finally, it may be helpful as you work through the process to learn some key terminology and lingo you may encounter. For example, debt-service coverage ratio refers to how much of your debt you can cover with your income per year; an ad valorem tax is a tax based on the property’s assessed value, and the vacancy rate refers to how many properties in a location are vacant at any given time. Once you’re familiar with the terminology, you won’t have to worry about getting lost during negotiations.

While purchasing commercial real estate can help diversify any business’s investment portfolio and bring in a passive stream of income, the purchasing process is a bit different from that of residential real estate. Thankfully, preparing with a few key facts ahead of time can help you navigate the process smoothly. With these tips under your belt, you’ll be prepared to find and purchase the commercial property you’ve been searching for.

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