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A Starter Guide to Owning a Commercial Building

A Starter Guide to Owning a Commercial Building

December 27, 2019
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A property investor once told me, don’t let your first property be your home. Long story short, it’s better to have a property that earns you money. So, whether you are planning on buying your first property or planning on adding a commercial building to an existing portfolio of residential properties, you are definitely on the right track.

Investing in a commercial building, when things go well, will generally give you higher returns--whether you decide to lease out the spaces or the entire building itself, or sell the building for a profit. But every investor knows that with every income opportunity comes risks; and when it comes to business, it is always a very important part of the process to know your goals and understand the risks involved before diving right in.

7 Basic Steps to Owning a Commercial Building

  1. Identify why you want to invest in a commercial building.

    Is it for the short term where you renovate and resell? Or perhaps you just want one that’s selling at below market value (BMV) so you can easily sell for a profit. If you prefer to keep the building long term for rental income, then that’s a different story altogether. Knowing your goals right from the start will help you define the next steps you need to take and help you to be more efficient with your time and resources.

  2. Identify what your options are.

    If you want to buy a commercial building for rental income, for instance, do you plan on leasing the entire building out or do you prefer to lease out individual spaces? Perhaps you would prefer to lease out entire floors to bigger businesses. Knowing your options and deciding which one you prefer will help you make better decisions in terms of things like what location and target market.

  3. Secure financing.

    Unless you already have cash in hand or a line of credit that will allow you to easily buy your ideal property, don’t wait till you find the ‘right property’ before thinking about financing. Having funds available when the right property comes along will surely make things especially when the seller is in a rush. If you have cash available, even better because you’d probably get a discount if you can pay on the spot. Aside from going to your bank for financing, and having to mortgage another property as collateral, you may also want to consider finding investors who share your goals.

  4. Partner with the right team.

    To reach success more easily, every business needs the right kind of people for the right kind of support. Investing in commercial real estate is no exception. You’d want to have people around you who can offer sound advice and help make things go smoothly. Examples of these people are a commercial real estate agent, a commercial real estate attorney, a Certified Public Accountant, and a Marketing Team. Time is always of the essence when we’re talking about investments and income opportunities, so you would want to already have the right people as your project progresses. Of course, it’s best that the specialization of whoever you choose to help you with your business is aligned with our goals.

  5. Find the right property.

    After you’ve established your goals for investing in a commercial building, figured out your budget/the availability of funds, and already have the right people to help you with your goals, go start searching for your ideal property.

  6. Don’t skip due diligence.

    Don’t just look at one property and say ‘this is it!’. Study your market. Study your potential risks as opposed to your potential rewards, and decide whether the rewards are worth the risks. Before you make a purchase is the best time to check all your options and analyze details such as present and future market values and the like--not after.

  7. Close the deal.

    Once you find your ideal property, go and make an offer. Be sure that your offer includes a contingency clause that gives you a way out of the deal should the building not pass inspection. After all, what will you do with a commercial building that is no longer suitable for occupancy or will require massive renovation that will jack up forecasted renovation costs?

Things to Consider Before and After You Close the Deal

  1. Aside from getting the help of an experienced real estate broker who specializes in commercial buildings, you may also want to find yourself a mentor who has years of experience in the commercial real estate industry and whose specialization is aligned with your goals. For example, if you want to buy and sell, then find a mentor who can teach you how and where to look for BMV properties and how to negotiate deals among others. If you want to keep the building for long term rental income, then find someone who specializes in this field.

  2. Ask the right questions. Every seller has their own motivation for selling. Knowing why your ‘ideal property’ is being sold will help you in two ways. First is to decide if want to go through with the deal, and second, is to know how you can negotiate for a better deal.

  3. Visit properties. Don’t just rely on what the pictures tell you or what the broker says. Visit each property you’re interested in. Check the property and the neighborhood as well. Put yourself in the shoes of your target market. Is the building in a safe neighborhood? Is it accessible to public transport? Every little thing matters

  4. Know how to protect your assets. Investing in real estate, whether it be in the form of residential or commercial properties, does not only require a large sum of money. You also invest a lot of time and effort. Naturally, you would want to make sure that once you close the deal, your asset is protected. Once you have a ‘target’ property, it will be worth the time to look into what type of insurance you’ll need to protect this asset and how much it will cost.

Commercial property insurance is your best bet in terms of protecting your building from unexpected circumstances such as fire, storms, burst pipes, and explosions. It also provides coverage for the things inside the building and just outside of it, so you also get protection against vandalism and theft.

Investing in commercial real estate and owning a commercial building can be exciting and financially rewarding if things are done the right way. Take the time needed to consult the right people and plan according to your goals. Equally important, protect your property and your investment by getting the right coverage through commercial property insurance. You’d want to be ready for any unexpected event such as a storm or fire. The best part about having the right insurance in place is that you get to have peace of mind knowing that whatever happens, you won’t have to deal with unnecessary financial losses.

Ready to take the next step in securing your commercial property and making sure you're well covered for every eventuality? Contact us today and we'll find a plan that's well suited for your your needs.

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