Quick Guide to Commercial Real Estate
If you are interested in building long term wealth, then commercial real estate will help you achieve your goals. However, if you've never bought a commercial property before, it may be quite daunting. While navigating the ins and outs may be challenging, the right information will be a useful tool.
This article will give you a guide to commercial real estate purchase. If you are a first-time buyer, then keep reading to find out what you need to know when you buy your first commercial property.
What Is Commercial Real Estate (CRE)?
Before diving into this guide to commercial real estate, it helps to know what this type of real estate is. CRE refers to property meant for business activity. Tenants rent out for work and not to live in. This is what sets it apart from residential property.
It usually has a longer lease period which means more consistent passive rental income for you. It’s an appealing form of real estate because of the high returns and property appreciation.
Step by Step First Time Buyers Guide to Commercial Real Estate
1.Know your options
If you are going to buy commercial real estate, you have to know the options available to you. Commercial real estate typically falls into four broad categories.
- Office
In this category, some buildings house different types and sizes of offices
- Industrial
This includes the larger commercial property, including warehouses and factories. It involves a larger outlay and is much more prominent on floor space.
- Multi-family rental
Multi-family rentals are buildings that you can rent out to many families such as apartments.
- Retail
Encompasses retail space for businesses that interact directly with clients, for example, shops and restaurants.
2.Define your strategy
Once you know your options, it's time to decide on your strategy. You have to ask yourself if you want to buy to keep the property for rental. Or if you're going to purchase and develop the property to improve its value for resale.
You will also want to think about which type of property you wish to specialize in. A clear
3.Set up a budget
The next step is to come up with your budget. As a novice property buyer, it's easy to pay too much for a property. The goal is to pay a fair price. Get experts, to give you a guide to commercial real estate prices. This will help you come up with a reasonable budget for the property type you are most interested in.
The Canadian property market, especially office space, is quite appealing; hence properties move fast. Having a predetermined budget will help you make decisions quickly. That way you won’t lose out on many great properties.
4.Get some help
Commercial property can be quite involved, especially if you are doing it for the first time. It’s essential to get an expert to give you a good guide to commercial real estate purchase. Consulting with a tried and tested realtor will help you avoid complications.
You might hit a lot of speed bumps while shopping for CRE. Having experienced people by your side will ensure success in your real estate journey. The temptation to avoid the expense of getting help is understandable. But getting help will save you more in the long run.
5.Go shopping
Now that you know what you want and how much you can spend, it’s time to start shopping for your commercial property. To begin with, look through property listings, you'll find a goldmine of available properties.
While skimming through the listings, you should keep a couple of things in mind.
6. Location
It's important to determine if the location is ideal for your chosen property type. For most commercial real estate purchases, urban locations are the best. For retail property, a location with a vacancy rate of less than 5% is the most desirable.
Slightly out of town locations with a good transport network are a better option for industrial sites. They are also much less competitive.
7. Zoning
Authorities classify specific areas for different business types. This is why you must know the zoning laws. Buying a building in an industrial area with the hope of turning it into a children’s play area, for example, might not be legal.
Guide to Commercial Real Estate Property Due Diligence
Once you have your eye on a property that works for you, it's time to do your homework.
Property taxes
They do say only two things are certain in life and tax is one of them, as with anything else you have to pay the piper. On average property taxes around the Edmonton area are roughly 2.3%. You have to know how much you are going to pay in tax so you can plan ahead.
The state of the building
An important consideration you should make is the state of the building. Will it need repairs? What kind of maintenance is required regularly? These factors come into play in the cost consideration and will also save you future headaches.
It's important to get a thorough building inspection done so you won’t get any surprises. Find a guide to commercial real estate building inspection to get a checklist to use.
Funding
Once you have all the information about a property, the next thing is to secure your funding. You don't want to lose out on a great property because you are still working out the kinks. So it's best to get the funding ready before you commit.
Closing the Deal
After all, is said and done and you have all the answers, it is time for the paperwork. Remember to read through the contracts, including the fine print. Enlisting legal help to give you a guide to commercial real estate contracts is a necessity at this point. You might want to make sure your contract has a due diligence clause, in case you discover something unexpected.
Final thought
Despite COVID-19, the commercial real estate market in Canada is still a great long-term prospect. However, blindly diving into the property market might leave you frustrated and in a loss position.
Commercial real estate buying can be quite risky since it involves large amounts. The risk becomes even more prominent when you are not well informed. For a new buyer, the many considerations you have to make may be complicated. Use this guide to commercial real estate to equip yourself with the knowledge you need to make a right decision.
Getting the right property will have you well on your way to generating good passive income cashflows and lasting value.
Even with a good guide to commercial real estate buying, looking for the right property may be overwhelming. We are here to help. Please have a look at our commercial listings and Contact us to find out more about our services.