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Tips for buying commercial real estate

On Behalf of | May 31, 2023 | Commercial Real Estate

Buying commercial real estate in Georgia is an effective way to diversify your investment portfolio. Here is an overview to help you get started.

Finding properties

Commercial real estate encompasses many property types, but you may want your first purchase to be smaller than a large office building. Several more affordable options are available, including multifamily residential properties, retail stores, warehouses and self-storage facilities. Whatever you decide, your income will come from tenants who lease the space from you.

Once you’ve narrowed your possibilities, find a commercial real estate agent to search for suitable properties. Your first investment should be close to home so that you can keep an eye on it. Once you have experience, you may be more comfortable assuming a remote landlord role.

Contractual concerns

You should hire someone experienced in negotiating commercial real estate contracts to assist you; the seller will almost certainly have an attorney who wrote a contract that favors their client. Unlike fill-in-the-blank-templated residential real estate contracts, commercial real estate contracts are unique from one seller to the next.

Commercial contracts typically include a due-diligence section, which states the allowable timeframe for a buyer to review a seller’s financial records, interview tenants, inspect the property and perform any other investigations that affect their right to own and conduct a business on that site. Negotiate an extended length of time if you feel it is insufficient. Remember, an unrevised commercial contract favors the seller.

Financing the deal

Commercial lenders require the property in question to generate a positive cash flow. The expected income must exceed the monthly mortgage payment, including insurance and property tax. You can also expect to make a 20% to 30% down payment.

Like any investment, there are inherent risks to purchasing commercial real estate. Building a team of trusted advisers is crucial to your future success.