Investing in commercial real estate can be a rewarding idea, but it also carries a unique set of risks, both financial and legal. Unlike residential transactions, a commercial purchase requires deeper due diligence, financial analysis and a clear understanding of zoning and liability issues for the property.
Whether you’re just embarking on the journey to invest in commercial real estate or already have a property picked out, it’s crucial to know what you’re signing up for.
Due diligence before the purchase
One of the most important things that you must do during a commercial real estate purchase is a review of the property. This due diligence includes conducting a title search to confirm ownership and uncover any encumbrances or leads. You also need to take a look at the zoning classification to ensure that the property can legally be used for your intended purposes.
In some cases, the property may need an environmental assessment. This is common if the property was previously used for industrial purposes. If any contamination is found, you could become liable for cleanup costs under federal environmental laws.
You also need to consider whether there are any existing tenant leases for the property. If tenants remain on the property after the sale, the agreements will transfer over to you. Unless you’re planning on renting the property out, this could be a significant delay in your intended usage.
Every commercial property purchase comes with a contract. It’s critical that you understand your rights and responsibilities under that contract. Working with someone who’s familiar with these matters may make it easier to determine if a specific commercial property and the terms of purchasing that property are right for your situation.