Tips on Buying Commercial Real Estate
Commercial real estate is truly a huge investment, not only in money but also time. You must remember that buying and managing commercial real estate is not a hobby, nor is it a matter of personal preference. In the truest sense, commercial real estate is a business. For most people, it will consume much of your resources for several years, so think carefully before you decide on anything. Here are some tips to help you along the way. Fair warning: you will really get to know the professionals in real estate before you reach the end of this project.
Find a licensed real estate broker
The first one you should shake hands with is a licensed real estate broker. A broker is not always an agent. The job of broker is to forge connections between a buyer and a seller, and to take a commission from one or the other in exchange for the service. Brokers are important in commercial real property transactions because they usually have good contacts, and you are more likely to get a good deal on a hot property. The broker will walk you through the loan terms that will give you the most bang for your buck given the current trends.
You don’t always have to go looking for one, either. In some instances, a broker with a client with property to sell may approach you. That is perfectly fine, as long as the broker is licensed. The license indicates that the broker has the skills and knowledge that qualifies them to give you advice on purchasing real estate. You will also have recourse if you get a bad deal. In the Philippines, a licensed real estate broker answers to the Philippine Regulatory Commission (PRC) for their professional conduct. Before doing business with a broker, ask for their license.
Find an accountant
The main reason you are going into commercial real estate investing is to make money. If you find a commercial property that has existing tenants, have an accountant go over the current owner’s books to see how much profit you can expect to make less all expenses. This is an important consideration, because your profit is derived from the lease income less your mortgage payments (or cost of money if you happen to be loaded enough to pay cash) and overhead expenses down the line, such as maintenance, taxes, and property management fees.
Find a good lawyer
You need a lawyer to make sure that any contracts you enter into are legal and aboveboard, as well as fair to both parties. Fairness is not automatic in a legal contract, and they can be hard for a layperson to understand, so make sure that your lawyer explains to you what the jargon means and advise you what terms you should get. Your lawyer can also check for you if the title is clean of any legal claims or issues.
Find an appraiser
A property appraiser is a third-party provider that can give you the lowdown on the property you are considering. You cannot rely on your real estate broker to do this. The appraiser will go over the property and give you a report on potential problems with the structure, the wiring, or even the land on which the property stands. These will all have an effect on the property values of your investment.
The professionals can help you understand exactly what you are getting into, and that alone is enough to justify the added costs for a commercial property. However, it is always better to do your research. Conduct your own background check of your retainers to see if they have a good reputation. Interview existing tenants about the problems they encountered, and if they are willing to renew their lease when the time comes. Check with the local government entity regarding any issues with permits and zoning restrictions. You make your decision only when you have exhausted all possible avenues and gathered all the data you can.