On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in blog on Tuesday, April 24, 2018.
If you are thinking about buying commercial property, you probably have a very specific plan in mind. You have your own business or want to have an investment that you know will pay good dividends.
Whatever your plans, however, commercial real estate is inherently more complex than buying a home. You have to consider all possible uses for the property now and in the future to decide if it is a good investment. For this and many other reasons, an expert in commercial real estate can give you a lot of advice to help you make the right decision before you buy.
There are many things to consider in a commercial property. What is the condition of the building? Is it up to code? What is the permitted zoning? Many of these considerations are going to be outside of your expertise to evaluate well.
The checklist of all the items that you need to understand is a part of your “due diligence,” or complete understanding of the property that you are considering. It often takes a team of experts, including construction and legal help to complete the checklist and be sure that you have looked at everything.
Types of buyers
You may have a specific plan in mind for a property that you have your eye on. If you have your own business, for example, you may be looking for a space that fits the business you already have operating or plan to open. Restaurants and many retail establishments prefer to own rather than rent space, for example, simply because of the investment required in fixtures and decoration.
The value of your property, both now and in the future, depends on its attractiveness to other kinds of buyers, however. There are three main types of buyers in commercial real estate:
- Investors, who are buying a property for the purpose of being a landlord and collecting the rent on it
- End users, who want to put their own business into the property
- Developers, who are more interested in the location and its potential re-use
All of these potential approaches have an influence on the value of a property. Before making an investment, you have to consider each of them as ways that your property can gain value. This is true even if only one of them interests you at this particular moment.
Expertise is critical
No matter what you might be considering, the other potential uses are going to be important. For example, it may not seem to matter to you that a property is zoned in a highly restrictive way if your potential business meets the requirements. But it does mean that redevelopment potential is limited, and that limits your potential gain further down the road.
As part of your due diligence, a thorough review of the entire potential value of the real estate is essential. It takes an expert in commercial real estate to walk through all of these scenarios and arrive at a good understanding of the potential value of your planned investment before you buy.