If you own a business, it shouldn’t be long until you will need commercial real estate. You may have even searched online for available office, warehousing, manufacturing, or retail space. However, there are a few steps you should follow as you start your property search.
Learn the Vocabulary
Purchasing commercial property is very different than purchasing a home or residential investment real estate. You should familiarize yourself with the terminology of this field. For example, you should understand the meaning of loan-to-value (LTV). This ratio compares your financing to your property value. The capitalization rate divides the total property value by the income it is expected to generate. This is especially important if you plan to lease any of the space. Finally, you need to know your debt service coverage rate, which gives you your cash flow after you have paid all your bills each month.
These are not the only terms you should know. You may need to understand permitting, amortization, contingencies, chattel, and many other terms. Find a good commercial property terminology website or dictionary to get a better handle on the questions you will be asked.
Define Your Needs and Goals
First, write down your budget. Make sure this number is achievable and that you don’t go over it. Then, write down what you need in your building. For example, how much square footage do you need? Do you need reinforced concrete floors for machinery? Identify the number and sizes of the office or open spaces you need. You should also discuss your preferred location and amenities. Finally, consider whether you are open to renovations.
Gather a Team
As you begin your property search, you should have a real estate agent you trust, a broker, and a real estate attorney. You may also seek the guidance of tax professionals, contractors, and appraisers. Environmental specialists may be necessary if you are in the manufacturing industry or if you plan to build. A notary will be necessary when you are ready to sign your paperwork.
Get Your Financing
Start with a preapproval. Commercial real estate is typically financed, and your bid will be stronger if you already have your financing secured. Therefore, review the terms and application processes of a variety of lenders. Then, get your loan approved.
Don’t make an offer on the first property you tour. Take time to tour a variety of options and make a decision based on your goal lists. You should ask how each property is used and evaluate its usefulness in your industry.
Take your time and find the commercial real estate that will best serve your company.