6 Things to Know About Buying Commercial Real Estate

Posted by Kris Lindahl on Wednesday, October 9th, 2019 at 10:38am.

What Everyone Needs to Know About Buying Commercial Real EstateCommercial and residential real estate transactions differ greatly. Crow Wing County buyers will notice big differences in everything from acquiring financing to negotiating the purchase terms. They can prepare for this process by using this guide to learn all they need to know. That way, they can find and acquire their ideal commercial property with confidence they are taking all the right steps.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Balloon Mortgages are the Most Common Financing Option

To finance the purchase price of a commercial property, buyers must approach a bank or other lender to learn about their loan options. For commercial property purchases, most lenders will offer a balloon mortgage agreement to those who meet their eligibility restrictions.

Unlike typical 15 to 30 year residential mortgages, this type of loan only stretches across five to seven years. Once the term ends, the remaining loan balance comes due immediately, demanding a lump sum payment at that time.

If that arrangement will not work for their needs, buyers can try these commercial real estate financing options:

  • Commercial bridge loans
  • Small Business Administration commercial real estate loans
  • Crowdfunding

Since commercial properties sell fast once they hit the market, buyers should have financing secured before starting their search. Otherwise, they could miss the chance to buy their ideal property.

Always Check Zoning Ordinances

Every city segments the land into distinct zones designed for a specific purpose. Commercial and residential property owners must abide by the regulations for those zones.

Since this could limit business owners' operations in many ways, they must check the zoning ordinances for every property under their consideration. While looking into zoning, they must pay close attention to see if there are any applicable:

  • Easements
  • Covenants
  • Exaction clauses

In addition, commercial properties can have variances and other clauses that allow the current owner to use the property outside the zoning regulations. Once the property changes hands, however, those clauses tend to disappear, reverting the location back to the original zoning terms.

Price Goes Well Beyond the Structure

Location is everything and that goes double for commercial properties. In fact, a building in a high-traffic, desirable location can go for several times more than similar properties in less desirable areas.

Buyers need to weigh the benefits of running their business from that location versus the overall value of the building and lot. If their venture does not rely on being in a central location, however, they can likely get away with a cheaper commercial property a little bit off the beaten path.

Always Acquire a Building and Property Inspection

Buyers should always have a commercial property inspected before making the purchase. Through an inspection, they can learn about all the work the building and grounds need before it can be used for its intended purpose.

The inspection should occur after offer acceptance, but before closing. They may need to negotiate for additional time beyond the standard 21 days allowed from offer to closing. This is especially true if the property needs issues addressed by a contractor and another inspection performed before it can close.

The need for zoning variances complicates matters further, especially if the city is slow to respond. Negotiating for more time allows buyers to overcome these issues while still acquiring the protections afforded by an inspection.

There is Plenty of Room for Negotiations

When buying commercial real estate, there is plenty of room for negotiations. Buyers can adjust the terms to suit their needs, ensuring the purchase provides enough value. But before going into any negotiations, buyers need to have their budget and ideal terms in mind.

Through effective negotiations, it is possible to secure a lower purchase price and even increase the buyer's chance of having the winning bid. One way to make offers look more lucrative is to include an escalation clause, which allows the price to creep beyond the asking price and competitors' bids.

Real Estate Agent Representation is a Must

Real estate agents can build the escalation clause into the offer and provide all the support buyers need to find and purchase their ideal commercial property. They are skilled in verifying the zoning ordinances and other terms will work for the buyer's intentions for the property. They are also valuable in defining the terms in negotiations and netting a lower purchase price.

Real estate agents can even verify the property is described properly in all related documents—and ensure buyers have enough time to complete a full inspection. As they provide support every step of the way, buyers can better understand the process and move forward in completing their real estate purchase.

By taking all these considerations into account, buyers can find and buy the commercial real estate of their dreams without worry about things going awry. They can practice their due diligence and avoid making mistakes that could derail all their efforts.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

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