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Importance of due diligence on a commercial real estate purchase

When acquiring real estate, you want to ensure there will be no surprises after purchasing a property. This is especially true when buying commercial real estate because the purchase price is often high, and if you miss something, that could affect your ability to make money from the property.

According to the American Bar Association, there are typically three kinds of commercial real estateĀ investors. There are buyers who want the property for investment purposes, real estate development purposes or to use for their own business operations. The planned use of the real estate affects how you conduct your due diligence.

Investment property

If you are acquiring a property like an apartment building, you will want to conduct due diligence on the existing leases. Verify that all the leases are valid. You may also want to check each tenantā€™s payment history. Look at past financial records that show capital expenditures and the current operating budget. You want to determine whether the revenue stream will continue after you purchase the property.

Real estate development property

The biggest concern for a real estate developer is if there are any development restrictions for the property. You want to determine how the property is zoned, and if there are any special use or conditional permits to handle. Determine whether the property complies with the Americans with Disabilities Act. Go over the title insurance carefully. Walk the property to scout for any potential issues, like accessibility to parking and unloading. There also might be environmental concerns, so contacting an environmental consultant might be in your best interests.

Personal business use property

Concerns with zoning law are also applicable here. If your business requires certain permits, the property needs to be zoned for this type of use. Maybe you plan to grow your business. Figure out whether there is room to expand your building or add more buildings on the property. This might mean reaching out to a construction company to evaluate the land. Check for environmental concerns that would restrict your business operations.

Performing your due diligence before your purchase protects your investment. It can also help ensure property is a successful business enterprise.

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