Things you shouldn’t settle for when buying commercial real estate
Buying commercial real estate is rarely an easy endeavor. It is a sizable investment that entails long-term commitment and a fair bit of forethought. In some cases, it is plainly obvious that your investment will be fruitful. In others, it can be hard to determine as there are different pros and cons to consider. But, in certain instances, there are some factors that you shouldn’t settle for. In this article, we will focus on these factors and how to recognize them as soon as possible.
Everything you shouldn’t settle for when buying commercial real estate
There are many reasons why someone might buy commercial real estate. You may want to run your business from it, or you may want to use the commercial estate to generate revenue. It may mean that you plan on flipping the property or that you want to rent it out to a company. All these situations can put different requirements on what you are looking for and determine which factors are more important. But, there are certain situations where buying the property is simply not wise, no matter what you plan on doing with it.
Not having the legal paperwork
In an ideal world, every piece of real estate would have no legal issues behind it. If a person owned a place, they would have the full right to sell it, rent it, or reside in it. But, unfortunately, we do not live in the ideal world. A surprising number of commercial real estate properties don’t have the necessary legal paperwork to be properly sold to a new owner. If the current owner is honest, they won’t even try to sell the property until the legal aspect is taken care of. But, honest owners are few and far between. It is not uncommon for owners to put the property up for sale, stating the legal issues are “practically settled”. If you hear or read this when considering a property, know that it isn’t something you want to be a part of.
Substantial building issues
It is not uncommon to find a commercial property with some damage. If there hasn’t been anyone using it for a while, and the owner hasn’t bothered with maintenance, you can easily find broken windows, rundown carpentry, cracks in the wall, etc. These are all relatively minor issues that are inexpensive to fix. But, what you need to look out for are substantial problems.
It is not uncommon for building managers to try to sell you something that will cost you a fortune to fix up. Structural damages, roof issues, wiring or plumbing problems, etc. All of these can be pretty costly to fix. Keep in mind that the building will have to pass an inspection before it is put to use. And if you make a deal with the owner before the inspection, you’ll be responsible for all the piled-up issues. Some buildings are easier to destroy and build up from scratch than to fix. So, if you see substantial damages that have been accumulating for a while, strongly consider giving the real estate a pass.
Not suitable neighborhood
If you plan on using your real estate to run a business, you ought to consider the neighborhood. Some pieces of real estate seem like a tremendous opportunity, but only because they are situated in a poor location. Know that your employees will have to get to and from work with relative efficiency. And if you cannot provide decent parking for them, they might be reluctant to work for you. Furthermore, dangerous neighborhoods can be a problem, as you might have people breaking into your office building while you are away. So, if you are unfamiliar with the area, try to avoid purchasing commercial real estate.
This is especially important to remember if you are moving to a different town. In that case, you need to find a local real estate agent to help you. Besides current issues, there can be future development plans for the neighborhood. These can change the property value and even put your commercial real estate in jeopardy. Just like you shouldn’t try to move your business on your own as reliable professionals can do this, neither should you attempt to find a piece of commercial real estate on your own. Thus, hire local professionals to help you find a suitable property.
History of failed businesses
When inspecting a new piece of real estate, it can be hard to consider all factors. Besides the quality of the real estate itself, different not-so-obvious aspects can have a tremendous impact. There can be noise issues that only occur within a specific time frame. There can be smells that come from improper plumbing. How are you supposed to know about these issues in advance?
Well, the safest way to get a hint is to see the history of the building. If numerous previous businesses stayed there for a while and then either failed or relocated, know that something is wrong. Ideally, you will be able to contact one of the businesses and see what the problem was. If not, try not to assume that your business will fair any better simply because you are running it. Instead, if an offer seems too good to be true, know that it probably is.
Why are you buying commercial real estate?
So far, we’ve only mentioned factors that stand try for any piece of real estate. But, apart from these, other factors can play a role. For instance, if you plan to rent out the property, you need to consider what businesses you will rent it out to. Some require on-site storage, while others require increased ventilation. You may even need to invest in climate-controlled storage or develop a parking solution for a large number of employees. All of this might not be as important if you plan on simply flipping the real estate for a profit. So, carefully think about why you are buying commercial real estate before and why you are interested in a particular property before you do so.
Article provided courtesy of Ryan Clark. Business management writer. He has also cooperated with mastermovingguide.com