How To Buy Commercial Real Estate 101

multifamily building, industrial warehouse, retail clothes on a rack, and office space all represented behind the title "How to Buy Commercial Real Estate"

We at Pillar Real Estate Advisors are often asked this very general question. The reality is that the answer is a product of many factors specific to the Buyer. For many, commercial real estate is a topic of uncertainty, but equally one of great interest by virtue of its potential upside.

Commercial real estate is any property utilized for business purposes. For example, property rented to various businesses like malls, office space property, industrial property, land proposed for commercial use, warehouses, hotels, and others.

Why Invest in Commercial Real Estate

Investing in commercial real estate is a complex undertaking and the best and wise investment you can make. The earning potential through passive income, consistent returns, and growth potential make buying commercial real estate more profitable than purchasing a residential property. The annual earning potential on commercial real estate investment is between 5% to 10% depending on its location, current economy, and other external factors.

However, not all commercial real estate investments yield the same earning potential. Therefore, taking careful consideration on what, when, and the location is key to the success or failure of your commercial real estate investment. So, how can you successfully buy commercial real estate?

We’ve identified five important areas to consider before making your purchase:

● Securing financing

● Considering your investment goals

● Conducting market research and analysis

● Performing your due diligence before investing

● Making an offer

Secure Good Financing

Have you secured funds through savings, loans, or investors? Available funds enable you to identify the right commercial real estate that is within your means.

Consider your Goals for Investing in Commerical Real Estate

What are your reasons for purchasing the commercial property? Having clear written reasons for investing in a specific commercial property is key to your investment success. Are you searching for a storefront, a large production property for industrial use, office space that does not need to depend on people traffic, and other reasons? Having specific goals will enable you to identify the right commercial real estate.

Conduct Market Research and Analysis

Again, having clear goals on which type of commercial real estate you’re searching for is crucial. With your goals in mind, perform market research on the kind of business you are targeting to introduce in the specific market area the commercial property is situated. What is the supply and demand of your potential business products in this market area? Unfortunately, some investors do not conduct market research on the potential risks and thus face the risk of failure.

Perform your Due Diligence before Investing

Before investing in a specific commercial property, analyze the potential risks vis a vie the potential rewards. Is your investment worth the potential risks? Thoroughly investigate the property, area compliance obligations, zoning laws, and the seller. At this juncture, a professional commercial real estate agent like Pillar Real Estate Advisors is necessary for you to conduct your due diligence.

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Make an Offer

Make an offer with an inspection contingency clause that protects you if the commercial property does not pass inspection. Avoid signing purchase contracts before your financing institution has reviewed the purchase contract and agreed to provide financing.

We recommend structuring most initial offers to purchase commercial real estate as a non-binding term sheet or Letter of intent LOI. This allows the basic business terms of a deal structure to be negotiated ahead of the formal contract stage. Many terms such as price, deposit schedule, inspection timelines, etc.. can be vetted out in advance. By structuring a formal contract using the agreed-to points of a non-binding term sheet, review and negotiation times involving attorneys can be reduced.

Pillar Real Estate Advisors provides works with you to identify the right commercial real estate property to satisfy your requirements. We are based in West Chester, PA.

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