Buying commercial real estate is not a simple task.
That may seem obvious, but there are many working parts and people involved in every commercial property transaction.
Below, we’ll show you how to best pair your expertise with Reonomy’s property intelligence to ensure you’re getting the most from your analysis and due diligence processes, and maximizing your ROI on every investment.
Reonomy’s Checklist for 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.
With limited time to undertake preliminary due diligence on a new property, our guide to buying commercial real estate will ensure that you have the right standards in place to enhance your due diligence and investment practices, and land your ideal property every single time you invest.
Use our buying commercial real estate checklist as a reference point to help fuel your future investment practices—especially when you’re looking to strike a deal off-market.
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:
1. Identify Your Assets of Interest [✓]
Reonomy gives you the ability to search for commercial investment properties that are both on and off market.
You gain access to essentially every commercial property in the nation.
That allows you to hone in on any nook and/or cranny of your market and spot the assets that are ready to be sold.
Generally, you can identify potential properties based on location, property type, property and building size, and so on.
Then, utilizing Reonomy property intelligence, you can look only at the assets that have sales and debt characteristics that signify a high-chance that the property could be sold off-market.
With Reonomy property intelligence, however, you can then look only at the assets that have certain sales and debt characteristics that point to them being likely to sell.
You can add and take away filters as necessary to find your preferred level of granularity.
Once you do that, you can begin to organize and label your results, and quickly begin outreach to those owners (see below).
2. Analyze the Ownership for Those Properties [✓]
If you’re a seasoned investor, you can start here, as you may already have your eyes set on specific properties (though diving through additional properties off-market never hurts).
So whether you follow through with #1 or not, you can still very easily dive into layers of detail on your target properties.
If you do search as mentioned above, you can jump into property profiles straight from your list of search results.
If you have a property in-mind, it’s as simple as searching by owner or address.
Quickly, you’ll be able to see transaction and debt history, as well as the names and contact information of the owners (including those veiled by an LLC).
So, here, you should analyze the transaction history of your target property, looking at past sale dates and amounts (as well as transaction type, etc.):
You should also be sure to review the debt history on the property, as that will better help you understand the financial standing and intentions of the owner:
Lastly, of course, is looking at the ownership of the property.
Who is it that you’ll want to reach out to? Are there many members as part of an LLC, or is the owner only one or two people?
These portions of the Reonomy platform are where you can analyze properties to glean very actionable insights.
You can also use those salient information points to connect on a more personal level when you eventually reach out (directly, mind you) to the owner(s).
3. Value the Property [✓]
Once you have an asset you’d actually like to follow through on, the first thing to do would be to value the property.
Continuing on with Reonomy, you can decipher the fair market value of the property, as well as gather the necessary in-depth insights to discern your preferred purchase price.
Reonomy has real estate comparables that allow you to take any property of interest and quickly find a list of other properties that are very similar in value and opportunity.
Comps are based on prior sales transactions, locational influencers, building characteristics, and more.
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 an owner.
4. Have the Property Inspected [✓]
This is where the help of others comes into play.
The tools are now available for you to find new opportunities, understand property values and ROI, and get in touch with property owners.
Still, you should enlist a certified outside professional to inspect your property of interest, to ensure that your purchase is as described and that the property facilities are in working order.
This is your way of ensuring that the property comes with as few headaches as possible.
As such, operational due diligence will be high on your list of assurances.
There’s a few general questions you want to answer before fully moving to purchase a commercial 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.
They can uncover the state of the property’s structure, HVAC facilities, walls, roof, surrounding parking, electrical wiring, heating, and plumbing.
At times, a local inspector might even help you gain a deeper understanding of the market, in a case where you might have missed a small tidbit or two, or if you’re new to investing in that particular area.
5. Study Property Deeds and Titles [✓]
Analyzing property titles 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, deeds and title information can easily be acquired with a visit to the local courthouse, by visiting county recorder websites, or by diving through Reonomy’s sales information on individual properties.
6. Have the Property Appraised [✓]
It’s important to also enlist the services of a certified appraiser to undertake an assessment on the potential return of investment that a property can offer.
This also works as backup for your own property valuation, simply helping you understand the property and market more holistically.
The right appraiser will be an expert in the type of property you wish to have appraised. That will also help you better predict the time needed to actually have the process completed.
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.
Furthermore, double-check to see if there was anything you missed in valuing the process.
Finally, as things progress, make sure that the appraisal your seller provides is current for comparisons with your own appraisal.
7. 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.
Keep in mind the importance of 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.
8. Connect with a Lender [✓]
Experienced real estate investors are aware of the value of connecting with the right lender.
Through local market reports and by analyzing individual commercial mortgages, you can understand what a loan should look like. From there, your own financial standing will, of course, play into the loan you eventually get.
Research different lenders to understand the best rates and terms available, and to see whether you should seek a loan from a local source, or large national institution.
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 those markets will help your investments generate the highest returns on a repeatable basis.
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.