What Can You Expect When Buying Commercial Real Estate?
Buying a building as an investment or for the purpose of owner-occupied is not something an entrepreneur does every day. Getting familiar with what you can expect when buying commercial real estate is a great way to prepare for the process and consider questions to discuss with your broker agent. In the following article, we will review the higher level process of buying commercial real estate.
8 Steps to Buying Commercial Property in Colorado
ONE: Build Your Professional Team
Transworld suggests working with a quality commercial real estate attorney, your financial planner or tax accountant, and a commercial broker. These professionals will be able to help you consider the full picture and repercussions of buying property and will help manage the transaction process on your behalf. If you’re unsure where to begin, ask for recommendations for experienced professionals from your commercial broker.
TWO: Determine Your Budget
Buying a building is a great wealth building tool, but it is also a significant investment. It is important to consider how much capital you would like to commit to a down payment and how much you would like to finance. Your loan considerations should take into account a monthly payment that will include principle, interest, property insurance and other building management costs. And don’t forget about the costs associated with closing on the property like attorney fees, brokerage fees and closing costs.
THREE: Pre-Qualify for Financing
A good place to start, is to seek recommendations for lenders from your buyers agent. After meeting with a few lenders, you will have a good picture of the interest rates you can expect, the loan fees associated and any other lending costs. Each lender will have slightly different criteria for their loans and the due diligence process and what they require from an entrepreneur. Once you’ve settled on a financial institution to work with you can ask for a letter of prequalification.
FOUR: Identify your Building Criteria
Depending on the reason behind your building purchase – investment, owner-occupied – your criteria for the purchase will be different. Take some time to truly consider your requirements, needs and wants for a building purchase in Colorado so you don’t waste time on properties that ultimately won’t work. The following are a few of the main characteristics to consider when purchasing a building
- Location: Do you need to be located close to clients, employees, other businesses, a highway entrance?
- Property Type: Are you looking to buy retail space, special purpose, a mixed use property to earn rental income?
- Demographics: Are the demographics of the population close to your building important?
- Size: How much space do you require? Are you looking for an office condo, a full building, a standalone retail space?
- Zoning: What type of zoning will you require?
- Special Purpose: Will you require any special features for your property – these options can be endless?
FIVE: Searching for & Qualifying Commercial Properties
Now that you have a firm idea of the type of commercial real estate buildings you will consider you and your broker can begin searching and qualifying properties for purchase. The best place to find properties is through national commercial listing databases, your broker’s listings and staying in close contact with your broker as listings come on to the market. In very active markets, like the Denver market, it is important to work closely with your broker as properties can be bought up as quickly as they come on.
SIX: Submitting an Offer & Negotiations
In commercial real estate an offer is submitted through a letter of intent (LOI) or a Memorandum of Understanding (MOU). To start, the buyer and the seller of the building will discuss the terms of the offer informally and then while they’re working to reach an agreement before they develop the formal contract. Once the final contract is created, the buyer should review it with their broker and their attorney before executing it.
SEVEN: Due Diligence
A typical due diligence includes a phase 1 preliminary environmental study, a physical property inspection, a zoning and requirement verification with the city or county, a title review, and an appraisal. If everything proceeds well for the buyer during due diligence and the lender approves, the process can move towards closing.
EIGHT: Transaction Closing
The final and momentous step of the commercial real estate purchase process is closing the transaction. All closing costs including the down payment will be funded to the escrow company (or the transactional attorney). The contract, loan and all other transfer documents will be executed and the buyer will become the new owner of the property.
If you’ve been fortunate enough to buy a home in Colorado, you will see there are quite a few similarities to the process of buying commercial real estate. And just like working with a great realtor can make or break the home buying process, aligning with a reputable broker is a great way to manage the stress of a complex commercial transaction and ensure you find the right opportunity for your criteria and budget.
If you would like to discuss buying commercial real estate in the Denver market, we invite you to call Transworld Commercial Real Estate to speak with one of our expert commercial brokers to determine the best next steps.
Rachael Holstein is the Marketing Manager for Transworld Commercial Real Estate, a full service commercial real estate firm in Denver, Colorado. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle! Visit transworldcre.com for more information.
