4 Things You Should Know Before Purchasing a Commercial Property

Making smart financial decisions is important in the ownership of a commercial property, and you can enjoy the increase of its value for years to come.

4 Things You Should Know Before Purchasing a Commercial Property

By Equity Smart Realty

Owning an investment residential property will allow you to earn rental income, which helps increase the property’s equity. Owning a commercial property allows for rental income, an increase in equity and oftentimes an opportunity to earn from business ventures. Commercial properties can have mixed uses. A building with office space can be mixed with residential spaces or even warehousing. As this area of real estate is more complex than residential, it is important to know these following tips:

  • Know your location

Location is very important in a commercial purchase and it will affect the type of business you will attract to your property. It may be difficult to attract renters to a warehouse, for obvious reasons; it’s for storage. If you are purchasing a property and aim to open retail stores, you should consider access to public transportation, public roads and parking. A commercial property that is conveniently located will attract multiple business and earn high rental income.  

  • Know your legal responsibilities

As the owner of a commercial property, you are also the landlord to the businesses and renters in your building. To best protect yourself and to maintain a professional long-term relationship with your tenants, you must sign a lease agreement with your tenants. Commercial leases usually span a longer period of time than residential leases. A 10-year period is sufficient, and successful businesses can negotiate for a longer period of time. By having a lease, everyone’s responsibility is laid out in writing. In the event that a tenant fails to pay rent or defaults on the lease in another way, the landlord can present the lease in court, which is most important in landlord-tenant matters.

As the owner, you should know your responsibilities as it relates to city regulations. You may have to abide by city rules, such as fire safety rules, which help prevent casualties. You should also obtain property insurance that covers damage to your property and any litigation that may arise from injuries at your property.

  • Know your finances

A commercial property finds value in its location and in the amount of income that is earned from rent and other income- generating business. Before you purchase a commercial property, you should know how much income it currently generates, and you can plan ahead to generate more income. If you own a business, you can own the property, have your business in one area, and other business on other floors. You should be aware that the ground floor is the most attractive location for customers, and that space usually goes to retail.

Not only do you need to know the income the property generates, you must know the expenses that keep the property running. Know the tax rate and the utility bills, allocate money towards repairs and even legal fees. You can find creative ways to decrease costs, like energy- saving lights and auto shut-off water taps. You can hire a property management team to help keep things running.

To get the financing to purchase a commercial property, you can speak to a mortgage lender. The lender will assess the property’s income as well as your financial capability. To further obtain financing, you can pool your money with a group of people by forming an LLC or corporation. It’s important that you create rules or bylaws with the group to protect each member and to allocate responsibility.

  • Know your real estate professionals

Investing in commercial properties is a complex process, so it’s important that you speak to a real estate attorney before you begin the process. You will need their expertise from the start and for continuity because of the legal issues that may arise while you own the property. The real estate attorney can draft solid contracts that protect you from liabilities in the buying process and in the ownership process. A real estate broker can help you find commercial properties in the best location. They can help you determine the best offer based on an assessment of the property’s value and market trends.  

A commercial property is a great asset for a real estate investor. As long as you are aware of the responsibilities that it entails, and when you speak to seasoned real estate professionals, you will make the best decisions. Making smart financial decisions is important in the ownership of a commercial property, and you can enjoy the increase of its value for years to come.


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