So, you’re interested in investing in real estate, but you have no idea how to purchase commercial property. The good news is that you’re not alone. Most first-time investors struggle to get started. Commercial real estate can be pretty intimidating. But that’s why you’re here. We’re about to give you a crash course in commercial real estate investing, starting with that big question – how to purchase commercial property.
How to Purchase Commercial Property 101
“The appeal of investing in [commercial property] is multifold,” explains Paulina Likos, an investing reporter at US News & World Report. “Investors can generate higher investment returns and take advantage of tax benefits.” But you already knew that. What you want to know is HOW. So, let’s dive in.
First, Educate Yourself & Find Your Niche
Commercial real estate is anything but cookie cutter. And while it can ultimately be beneficial to diversify your investments, it’s smart to start in one specific area – become the expert. So, what are the different property types?
- Multifamily – These properties are “comprised of apartment complexes, high-rise condominium units, and smaller multifamily units,” explains JD Esajian, Fortune Builders. “Property is qualified as multifamily real estate any time it has more than one unit, but can also be considered a commercial property if it has more than four units.”
- Office Space – Now, office space may seem pretty straight forward, but there are actually three general classifications: Grade A, Grade B, and Grade C. Grade A office buildings are usually brand new or recently redeveloped or renovated and in prime locations or major cities. Grade B offices are typically found in the suburbs or slightly cheaper areas, and are well-maintained and finished to a good or fair standard, including adequate facilities. Grade C office buildings are typically 15-25 years old, functional with steady occupancy, and available for low rent.
- Retail – This type of space includes strip malls, retail centers, banks, and restaurants. “The size of these real estate properties can extend anywhere from 5,000 square feet to 350,000 square feet,” explains Esajian.
- Industrial – This type of real estate includes warehouses, distribution centers (think Amazon), and large manufacturing sites. Industrial space is characterized by height specifications and docking availability.
- Hospitality – Here is where we get into hotels and motels.
- Healthcare – This is a niche market with complex regulations. However, purchasing medical realty remains an excellent option for real estate investors.
Thoroughly Evaluate Every Property
There are several factors to consider when evaluating potential investment properties.
- Location – When it comes to investing, selecting the right location is one of the first critical decisions you will have to make.A great property in a subpar location may not be the great investment you are hoping for.
- Zoning – Is the area zoned for your intended use?
- Physical Condition – Similar to location, a subpar building in a great location may not be the blockbuster investment you are hoping for either. A thorough inspection of any potential property is a must to uncover hidden issues.
- Parking – Ample parking can be incredibly important depending on the type of tenant you hope to attract. Limited parking can actually be a deterrent and make it harder to keep your building occupied.
- Background – How old is the building? What has the property been used for in the past? How much income or rent does the property currently earn on an annual basis? What are the property taxes?
Don’t Go It Alone
You don’t get brownie points for going it alone. In fact, trying to break into commercial real estate investment without an expert (or experts) in your corner can end up costing you – BIG. Partnering with the right broker can make all the difference. It is the broker’s job to find and compare properties that make sense for you and, when the time comes, help negotiate a favorable deal that helps maximize your return on investment (ROI). Typical services include:
|Site Selection||Timeline Management||Market Surveys|
|Purchase Negotiations||Strategic Planning||Negotiation Strategy|
|Analysis for Investment||Market Analysis||And More!|
Other experts to consider hiring include:
- Mortgage Broker – Do you need to secure financing? A mortgage broker can help make sure you have the funding you need to invest in your property.
- Accountant – Jumping into the world of real estate investing brings about several new challenges. An experienced accountant can make sure you are set up for success and take advantage of available tax breaks.
- Lawyer – Legal representation can be incredibly beneficial, especially when investing in certain types of real estate. It’s important to make sure you are covered.
Purchasing commercial real estate involves a lot of moving parts. Assembling the right team is incredibly important. Even experienced investors know it is crucial to have the right people in their corner.
United Development Realty – We Can Teach You How to Purchase Commercial Property
If you’re struggling to understand how to purchase commercial property and feel overwhelmed trying to break into the realm of real estate investment, United Development Realty can help. We provide Real Estate Consulting and Landlord Representation services throughout Maryland to help investors, like you, make smart real estate investments that maximize your ROI.
Our client-first approach to commercial real estate consulting ensures that your unique needs are met. We start with you: your vision, your objectives, your goals. Then, we assist you through a tailored package of services to locate a property that fits your vision.
Let us help you make a smart investment. Call our office (locations in Bethesda 240-221-1976 and Fells Point 410-522-1632) to get in touch with an experienced commercial broker today.
- Esajian, JD. “Commercial Real Estate Investing – How to Get Started.” FortuneBuilders, FortuneBuilders, 1 Apr. 2021, www.fortunebuilders.com/how-to-invest-in-commercial-real-estate-getting-started/.
- Likos, Paulina. “Adding Commercial Real Estate To Your Portfolio Requires Investor Due Diligence. Here’s What You Need To Know.” U.S. News & World Report, U.S. News & World Report, money.usnews.com/investing/real-estate-investments/articles/how-to-invest-in-commercial-real-estate.