Buying commercial real estate is not a simple task. And while that may seem obvious, what makes it that way are the many working parts and people needed to do so. With the right practices in place, however, the process does not have to be as strenuous as in the past.
In this article, we’re going to show you how to use your expertise as an investor alongside our checklist to make sure you’re always getting the highest ROI out of your commercial portfolio.
Buying Commercial Real Estate
Undertaking due diligence on a commercial real estate investment is part and parcel of your success as a repeat CRE investor.
Ensuring that you have the right standards in place will enhance your due diligence and investment practices, helping you to land your ideal property every single time you invest.
Buying Commercial Real Estate Checklist
With limited time to undertake preliminary due diligence on a new property, our guide to buying commercial real estate will give you everything you need to ensure you’re always acquiring high-value, complication-free properties that offer the highest short and/or long-term ROI.
Use our buying commercial real estate checklist as a reference point to help fuel your future investment practices.
From first identifying a target property, to working through the process of purchasing it, you should always complete the following when buying a commercial property:
How to identify target properties:
- Use Reonomy to Search Off-Market →
- Use Reonomy to Get Owner Contact Information →
- Value the Property with Reonomy →
Once you’ve identified a target property:
- Inspect the Property →
- Run a Property Title Search →
- Have the Property Appraised →
- Check Compliance with Zoning and Other Regulations →
- Connect with a Lender →
Reonomy gives you the ability to search for commercial investment properties that are both on and off the market. In other words, you gain access to essentially every commercial property in the nation.
Instead of just competing for a handful of listed properties, you can sift through the entire market and find the properties that fit best for you, and reach out to them before your competitors do.
You can search these properties using varying levels of filters. Search by location, asset type, building and lot characteristics, sales history, debt history, and ownership information. Add different combinations of these filters to get more and more granular.
To run a property search, simply login and visit Reonomy’s search platform. You’ll see tabs for Location, Asset Type, Building & Lot, Sales, Debt, and Ownership. You can add multiple filters under each of these categories.
See our user guide articles to learn exactly how to run different types of property searches on the Reonomy search platform.
As a seasoned investor, you likely already have your eyes set on specific properties. Reonomy allows you, with or without running a property search (as mentioned above), to dive in and see the details of any commercial property.
Details include transaction and debt history, as well as the recorded owner (LLC or individual), owner name, phone number, email address, mailing address, and more.
By visiting a property’s profile, you can begin to understand it with great depth, then dive in further to understand the owner of that property even more.
To search for a property owner by address, you can again login and visit Reonomy’s search platform. From there, you can either add in location filters in pieces (i.e. city, county, zip code, street name), or you can simply type in an exact address in the search bar at the top of the page.
Value the Property with Reonomy [✓]
Once you’ve fully studied and understood your property of interest, you can use Reonomy to decipher what the fair market value should be for that property.
With Reonomy Comps, you can take any property of interest and quickly find a list of other properties that are comparable in value and opportunity. Comps are based on prior sales transactions, locational influencers, and building characteristics.
Take your property’s most recent sale price and combine it with your existing knowledge of the market’s general appreciation or depreciation. Combine that with your list of comparable properties, and you’ll know exactly what the fair market value of a property is before even reaching out to its owner.
Have the Property Inspected [✓]
As a seasoned commercial real estate investor, you’ll likely understand the necessity of enlisting a certified outside professional to inspect a property in order to ensure that your potential purchase is as described and that the property facilities are in working order.
When purchasing a number of investments, you’ll want to ensure that your purchases come with as few headaches as possible. As such, operational due diligence will be high on your list of assurances before you transfer funds. As an investor, you’ll likely want to have a few key questions answered about the state of your property: Is it structurally sound? Is there adequate parking for your desired usage? What is the state of the electrical wiring? How might the added costs of faulty HVAC facilities impact your bottom-line?
A certified, third-party inspector can be relied upon to ensure that everything is working as it should. An external inspector specializing in your commercial real estate asset type will uncover the state of the property’s structure, HVAC facilities, walls, roof, surrounding parking, electrical wiring, heating, and plumbing.
A local inspector will also help you gain a deeper understanding of the market, and can provide insight into how your potential property stacks up against similar properties in the area.
Run a Property Title Search [✓]
Running a property title search will give you peace of mind when buying commercial real estate. A property title search will help illuminate whether a property is tied up with liens, mortgages, misattributed seller ownership, tax debt, or other complications that could decrease the value of the property, muddy ownership, or put limitations on the property’s usage.
Depending on your budget and the length of your to-do list, you may prefer to hire a title company to undertake a property title search for you. Many investors enjoy the peace of mind that comes with the guarantee of rightful property ownership and a crystal clear insight into property defects that are provided by a title company. However, deed and title information can easily be acquired with a visit to the local courthouse – free from sizable service fees.
Alternatively, data on a property can often be found online, through the county assessor on your local government website. However, often online data is incomplete and many properties may be missing from the system.
Have the Property Appraised [✓]
As an experienced investor, you’ll understand the importance of enlisting the services of a certified appraiser to undertake an assessment on the potential return of investment that a property can offer. The right appraiser will be an expert in the type of property you wish to have appraised.
Consider the size and demands of the property when factoring in the time it will take to have your property appraised. A large multifamily apartment may take far longer to appraise than a small office space. Provide your appraiser with everything they need, from floor-plans to tax bills, in order to speed up the process. Be sure to factor in the time it will take to have the property itself appraised, in addition to the added assessments that your appraiser will need to undertake on geo-demographic data, zoning and public ownership records, comparable sales, and other necessities.
After your appraiser completes their assessment, don’t hold back from double-checking to see if every important factor was taken into account. For example, did they account for every room within the building? Ensure a thorough assessment of the property’s value has been provided. In addition, make sure that the appraisal your seller provides is current for comparisons with your own appraisal.
Check Compliance with Zoning and Other Regulations [✓]
Ensuring that your future purchase complies with current zoning regulations is another necessary piece of the due diligence puzzle. It’s always important to factor in future plans for usage, renovation, or expansion, when checking for zoning compliance. Do your ambitions for your property usage meet the regulations of its zoning district? Will your plans for expansion be curtailed by the rules of your local zoning text? In addition, ensuring that you are informed on the implications of zoning compliance and the related fees for your property will also allow you to better calculate your future NOI.
Furthermore, also keep in mind the importance of compliance with environmental regulations when buying commercial real estate. Many unfortunate commercial property investors have found themselves responsible for the expensive clean-up of inherited property contamination that spans over decades. This can easily be avoided by taking environmental compliance into account before buying commercial real estate, and ensuring you are covered by the right commercial liability insurance.
Connect with a Lender [✓]
When buying commercial real estate, connecting with the lenders that will offer you the best rates and terms is a skill quickly acquired by the experienced property buyer. Many experienced property investors are aware of the value of researching different lenders and comparing figures. Sketch out loan terms, down-payment requirements, interest rates, upfront fees, and closing fees, and compare the final figures for each lender.
Check out our guide to commercial real estate loans for an in-depth exploration of the different loan types available, beyond a traditional commercial real estate loan.
Your Checklist for Buying Commercial Real Estate
Having an in-depth understanding of the property market and the properties within it will help your investments generate the highest returns for your business over and over again.
Our checklist for buying commercial real estate can act as a quick and handy reference point to help you ensure that you undertake a thorough exploration of a property before buying it.