Buying Commercial Real Estate
OWNER / USER LEVEL
What are the zoning codes in the commercial area ? What are the uses for each ? Will the building be an owner user or are you looking to build equity and rent it out ? What’s your risk tolerance? What is the zoning parking requirements for the use you are seeking ? What is the cost of a CUP and will it be worth the risk ? Finally, are you ready/willing to make a investment/purchase of this size?
How much time can you commit to the property? What kind of location do you need? Would you be willing to partner with someone else on the property? What skills/knowledge are you bringing to the table? What kind of property manager might you need (or not)? Are you willing to do the duties of being a landlord? Do you have the skills to detect deferred maintenance issues?
What’s your situation regarding cash, financing, and/or ability to make a down payment? Which banks are interested in your purchase ?Will the purchase qualify for a SBA loan ?
If you’re like most people, you’ll need to get some financing help to be able to purchase the property.What type of banks, credit unions or other home mortgage company could you use? What kind of credit do you have and what kind of interest rate could they give you? Answering those questions is the first part of the financing process.
If traditional financing methods don’t serve you so well, could you try a more creative method for financing/purchasing the property? Would the owner/seller be willing to help with financing? Read up on things like seller carry back, subject-to, second mortgages, and lease options. There’s definitely more than one way to finance a commercial real estate purchase.
RENTS AND HOW THEY AFFECT YOUR ABILITY TO INCREASE VALUE
What are the local rents in the area of interest ? What skills/knowledge will you need to hire experts ? Do you have attorneys to construct lease agreements Do you have a CPA that will provide the accounting for your NNN fees ?
Buying commercial real estate is a complex process. You’ll likely need to hire experts to help with some of the steps. Which and how many experts depends largely on the type of property you’re purchasing. At the very least, you’ll need to hire an accountant, commercial real estate lawyer, commercial realtor, and a mortgage broker. If the property is more complicated, you could need other specialists like tax experts, accountants, lawyers, notaries, appraisers, engineers, and/or environmental specialists. There are some things you can do on your own (through research) but most likely better to hire an expert.
This is where reality strikes you. Money is about to change hands. You’ll need to dot all the i’s and cross all the t’s. You can never know too much about the property you’ll buy.
You’ll generally need to get an ALTA(American Land Title Association) survey ordered, which can be used as part of the due diligence. An ALTA survey provides valuable information such as boundary lines, location of the main building (if there is one) including improvements, location of secondary buildings, the identification of easements (which are access rights by different service companies such as water, gas, telephone, railways and other utilities).
You and the seller will need to find an escrow officer who will be the neutral 3rd party overseeing the transaction. They will help with the transfer of deeds and funds. They make sure both parties are protected in the transaction.
The final closing escrow documents will include things like a quitclaim deed, non-foreign affidavit, title affidavit, bill of sale, sale and assignment of contracts, warranties and supplier guarantees.
Finally, you (the buyer) are given a due diligence time period with which to make sure all the documentation about the property is correct. This is where you triple check that everything the seller told you about the property is true. This includes things like service/utility contracts, surveys, environments reports, rent rolls, covenants, soil reports, restrictions, and many other aspects of the property.In the event a problem comes up in your inspection of the property, you have the right to tell escrow to cancel the transfer & return the funds back to you.
Kunau & Cline Agents are ready to accept your call: 626.583.8484
Selling Commercial Real Estate
Starts with a good Broker
Every commercial property investor needs a team of experts who will work to minimize their risk and maximize theire returns. These are professionals that you will need. First is to select your Real Estate Broker / Agent. Here are the other key members every smart real estate investor should have on his/her team.
Second expert on your team – Real Estate Attorney
Find a good real estate attorney and put him on retainer. A One Thousand Dollar retainer can save you tens of thousands of dollars or more in a deal gone bad.
You will want an attorney to review your contracts of sale to make sure you aren’t leaving any money on the table or taking responsibility for expenses you did not plan on paying. There is no better security for your investments then a consultation with an attorney who is familiar with your business.
Some of the key things a Real Estate Attorney can help you with as a seller is making sure your contract states your buyer will take title by a Special Warranty Deed. In this deed the grantor (seller) warrants—unless noted specifically in the deed—that the property was not encumbered during their period of ownership. The grantor of the special warranty deed, warrants the title against their own actions or omissions. They warrant nothing prior to their taking title. This protects you from any liens that may have been missed by a title search prior to your taking ownership of the property.
Third expert on your team – Real Estate Title Company As the seller you normally have the contractual right to choose the title company which will handle the transfer of the property. Your Agent is used to working with a Title Company. Make sure you feel comfortable working with and use them as well. Then use them for all of your transactions if possible. A title company’s main purpose is to go through all of the public records on a parcel or parcels of land and determine what liens, easements and encumbrances may exist against the property. There are certain things like utility easements that run with the land and every title policy will exclude these from their insurance as they are required by the municipality for access to service junctions. That can mean bad news for a buyer who did not have a title company. You want to make sure any liens that are specifically against a previous owner are either paid off or insured by your title company. Otherwise these liens could become your problem when you sell.
Fourth expert on your team – Accountant
This is a standard team member you will want for any business, especially real estate. The basic job of an accountant is to keep track of where all the money is going, income as well as expenses.
They also will advise you on the best ways to minimize the taxes you pay on your investments. An accountant can guide you through the most tax beneficial ways to structure your company or partnership; how to shelter rental income and how to minimize the taxes you pay in capital gains when you sell.
Also, when you have income and expenses coming from multiple properties, having a knowledgeable accountant on your side to keep track is critical. Unless you have the real financials for each building, it can be impossible to determine a property’s real value at time of sale Your accountant will have all of your receipts organized and itemized and will make your audit as painless for you as possible.
Fifth expert on your team – Appraiser
An Appraiser can provide you with comparable sales data for your area to help you determine the value of your property. You want to make sure you are getting the most value when you sell. They can do a full appraisal of your property and give you a solid value to use when marketing your property. A potential buyer will have a hard time justifying a lower price offer than what a professional appraiser has valued your property.
Contact our office today for more information: 626.583.8484