A ‘How-to’ Guide for Beginners On Purchasing Commercial Property

October 6, 2021

There are many different ways to make money these days, including working for someone else, freelancing, and investing. You might decide to buy stocks, invest in cryptocurrency, or buy shares of a company.

However, one of the best investment options is property. Commercial investment properties in particular are capturing people’s attention due to their potential for high returns.

If you’ve been considering making an investment, a commercial property purchase may be worth your while. The following advice may be helpful for starting you on your purchasing journey.

Step 1: Learn About the Commercial Property World

No one becomes an experienced commercial property investor overnight, understanding terminology like cap rate, discounted cash flow, the weighted average cost of capital, and more. There can be a lot to learn, so don’t delay in learning as much as possible about commercial properties before you start looking at what’s available.

Listen to podcasts, read books, join real estate investor groups, and look at investor social media pages. The more you learn about this exciting world, the easier it may be to move onto the next stages of commercial property investment, such as choosing a property type, researching it, and confirming your investment strategy.

Step 2: Choose a Property Type

The word ‘commercial’ when referring to a property is a blanket term. It can relate to many different property types, and not all of them will hold your interest as much as others.

To shop with far more confidence, put thought into the property types you could see yourself owning. You might buy an office and rent it out to one or multiple tenants. Alternatively, you might look at multi-family apartment complexes, hospitality buildings like hotels, warehouses, and other industrial buildings, and retail real estate.

Sometimes, you aren’t able to choose a commercial property type to suit your needs until you’ve pondered your investment strategy.

Step 3: Identify Your Preferred Investment Strategy

People purchase commercial properties for many different reasons, with one of the most popular ones being to make money. It’s essential to have a strategy in mind before you make one of the most significant purchases of your life.

You might choose to landbank, which involves purchasing land and sitting on it as it appreciates. Others buy a raw land and develop it, often with commercial properties they can then keep or sell.

Fixing and flipping are also quite popular, with investors buying a property for a competitive price, renovating it, and selling it for a profit. You can even be an owner-occupier, a wholesaler, a passive investor, or someone who operates with the BRRRR strategy, which means buy, rehab/repair, rent, refinance and repeat.

As you can see, there are many different investment strategies to consider, which means it’s crucial to weigh up the pros and cons of each to make an informed decision before diving right in.

Step 4: Crunch the Numbers

Crunching the numbers maybe your favorite or least favorite part about purchasing a commercial property. You have to analyze your financial situation and ensure that the purchase price, renovation costs, projected rent, and any financing you require will still equal profit.

Fortunately, there are many online tools to help with this process, such as a cap rate calculator. This tool enables you to estimate how much a property is expected to make and how it compares to properties in your area.

Rather than working out the maths for yourself, you can simply input the property value, your yearly earnings, and yearly expenses like taxes and maintenance into the calculator, and it works out the cap rate for you.

When it comes to working out the prospective earnings and expected costs of ownership, you may need to sit down with experts to ensure that each property you look at is one that has the potential to make you money.

Step 5: Surround Yourself With Experts

Even after reading books, browsing articles, and listening to podcasts, it’s unlikely that you will understand everything about commercial property investment at an expert level. However, not knowing everything doesn’t mean you’ll be left floundering as you embark on your purchasing journey.

After deciding on the properties that you’d like to purchase, identifying your investment strategy, and spending some time crunching the numbers, you can start to surround yourself with experts.

Consider hiring a commercial property broker who can alert you to properties now and in the future that fit your property criteria. After speaking to a broker, align yourself with a commercial real estate attorney.

Their job is to review any purchase and sale agreements you have, check for zoning restrictions, environmental issues, and more. They can even negotiate loan agreements on your behalf.

Even specialized commercial contractors and commercial property management companies are worth having on board. A commercial contractor can determine any likely repairs you might need to carry out when you take over ownership and if there’s anything that might impact your ability to turn a profit.

A commercial property management company may also be worth considering if your ultimate goal is to bring tenants on board. They can look at any issues and factors that might cause problems for you and potential tenants before or after you buy.

Step 6: Buy Your Property

Buying a commercial property can be a significant undertaking, which is why there can be many steps involved in the process. However, after doing your due diligence, bringing experts on board, and identifying what you’re looking for and what your strategy is, you can be ready to purchase a property.

Remember to examine each potential property with a fine-tooth comb, look at its profit potential, and have expert advice. Before long, you might be the proud landlord of a new property that earns you money for years to come.

When you have never looked at your options around purchasing a commercial property before, there can be a lot to take in. These six steps above may provide you with an ideal foundation for knowing which experts to hire and what tools you need to familiarize yourself with. Take your time, learn the ropes, and see where your property purchasing journey takes you.


You may also like

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}