If you own a small business that’s growing, you can easily outgrow your leased space. Assuming your revenue supports it, you may consider purchasing commercial real estate.
Commercial real estate isn’t like personal real estate. As a general rule, you must use the property for a business purpose. Think central office, headquarters, or retail space.
Thinking of making that first commercial real estate investment? Keep reading for some tips for making the process a little smoother.
1. Secure Professional Legal and Financial Assistance
Commercial real estate purchases can prove quite complex. When you consider your first commercial real estate investment, you should secure the services of the following:
- Commercial Real Estate Attorney
- Accountant
- Commercial Real Estate Agent
If your bank doesn’t hire someone for the job, you may also want someone who can perform environmental testing. The most common version of this testing is the Phase 1 ESA.
2. Hire an Engineer
Before you plunk down hundreds of thousands or millions of dollars on a property, make sure any structures remain sound. A good structural engineer can examine any building and provide you with a detailed report on their condition.
This protects you from purchasing a property that won’t last more than a few years. It also informs you which systems might near the end-of-life soon.
3. Look for the Right Loan
Commercial real estate loans come in several varieties. Some of the include:
- SBA 7(a) loans
- SBA 504 loans
- Joint Venture loan
- Commercial Mortgage
For a first-time commercial property purchase, your best choice is probably the SBA 7(a) loan. This loan maxes out at $5 million, but most small commercial properties should come in under the cap.
4. Develop a Clear Vision for the Property
You need a clear sense of what you plan to do with the property. If you know what you must remodel, you can secure the financing for it.
One useful tool for clarifying your vision is 3D floor plans. They can expose flaws in your thinking or help you imagine something even better.
5. Don’t Fear Walking Away
You almost certainly considered several properties before you selected one. If something turns up in the soil report or engineer’s report, consider walking away.
If the building has serious problems, you’ll suffer less in the long run from picking another building and trying again. It’s better that you spend the extra time picking the right property than spend years trying to fix the wrong one.
Parting Thoughts on Commercial Real Estate Investment
Pursuing your first commercial real estate investment can create excitement, fear, and impatience.
Don’t skip anything. Do your due diligence in finding out everything about the property, including the condition of the soil. Bring in a structural engineer for the low-down on the building condition.
Get a clear picture of what you see as the final version of the property. Develop 3D floor plans if it helps you focus.
If things turn up that make you hesitate, don’t ignore them. Walking away can end up saving you time, money, and mountains of frustration.
Thinking of making commercial real estate a full-time occupation? Check out our post on what you should know .
