Commercial Real Estate Due Diligence
Investing in commercial real estate can be a great way to generate income, however it is important to do proper due diligence before investing. Due diligence is the process of researching and verifying information about a potential investment. This article will provide an overview of the key considerations for commercial real estate due diligence investing, such as the types of information you need to research and tips for carrying out due diligence efficiently.
What Is Due Diligence?
Due diligence involves researching and analyzing all aspects of the property, from its physical condition to legal compliance issues. Due diligence is essential in order to ensure that you get the best return on your investment dollars. Due diligence starts before an offer is made and continues once an offer has been accepted and the contract to purchase has been signed by both the buyer and seller.
The process of due diligence can be time-consuming and costly; however, it can also reap substantial rewards if done properly. When conducting pre-offer due diligence, it's important to evaluate market conditions such as vacancy rates or forecasted population growth in the area surrounding the property. Other important factors include examining potential problems with zoning laws or building codes that could affect future profitability. If there are vacancies in the building then figuring out why there are vacancies can save a buyer from investing in something that is in a location no one wants to rent from.
Important Commercial Real Estate Terms To Know
Want to invest in commercial real estate? Knowing the commonly used terms can be important when it comes to talking with sellers, buyers and lenders about a property. Understanding the commercial real estate terminology also can help the commercial real estate investor make sure they are buying a profitable investment. Commercial real estate investing is quite a bit different compared to residential investing and understanding the different terms used is important.
Capitalization Rate (Cap Rate) – Cap rate refers to the rate of return one can expect for a commercial real estate investment property. The Cap Rate is expressed as a percentage and is based on Net Operating Income (NOI, see below) divided by the purchase price of the property. It can also be based on the current value of the property if the property is not currently for sale but is instead being refinanced and the mortgage lender is wanting to know the cap rate of the property as part of lending due diligence.
Cash Flow – Real estate cash flow is the amount of income an investor will get from a particular investment property (can be commercial or residential rental) minus all expenses. Expenses include taxes, maintenance, insurance, management fees. Basically, anything spent towards generating that income is an expense that should be deducted from the income to determine the actual cash flow. Ideal investment types should have positive cash flow. Investors who buy based...
How Large Multi-Family Buildings Should Be Marketed
Large multi-family buildings need a different marketing strategy than a typical home for sale would get. Owners of these properties often times go with who they know and end up listing their property with a real estate agent who specializes in residential real estate. That real estate agent may be an expert in their field of residential real estate but large multi-family buildings (5 or more units) fall into the commercial space and require a different set of skills. The owner of such large multi-family buildings who wants to sell their property would be better served by a real estate agent who understands the buying and selling of large multi-family buildings. This article explores the ways a large multi-family building should be marketed when putting it up for sale.
Get The Price Right
When looking for comps for large multi-family buildings sometimes looking for similar properties in the same neighborhood may not be feasible since there may not be any recent sales. Instead owners of large multi-family buildings need to be looking at what is the going price per unit or price per door for the building and use that to come to the asking price. The price per door that is set as the final price does need to take into account any deferred maintenance, the need for updates and more. Afterall one should not price their building at a premium and expect good offers when there is still...
Top 10 Highest Commercial Properties For Sale in the Greater Cincinnati Area
The Greater Cincinnati area is a diverse market relatively smaller in size compared other large cities. Often overlooked by large investors there are plenty of oppotunities for investors looking for commercial real estate to buy. Check out some of the most expensive commercial property listings available on the Multiple Listing System (MLS). The commercial listings cover all the different categories such as retail, warehouse, office, industrial and more. If you want to learn more about the cash flow possibilities of any particular property be sure to get in contact today with Paul Sian who is local Cincinnati and Northern Kentucky Real Estate agent. (This list focuses on commercial properties in one location as opposed to a portfolio of properties spread around the city that are listed for sale as part of a package deal.)
Tips For Buying Commercial Real Estate
When it comes to buying commercial real estate, the approach is a bit different compared to buying a home. Residential homes have thirty-year fixed mortgage rates as well as lower interest rates compared to commercial mortgages. Commercial real estate has shorter overall terms, higher interest rates and the lender will look pretty closely at the commercial property to see if it can support the commercial mortgage loan. This article looks at what the new commercial real estate investor should be considering before they start on their adventure.
What Is Your Reason For Buying Commercial Real Estate?
For those wanting to buy commercial real estate as an investment the lender considerations will be somewhat different as compared to someone wanting to buy to have their business in the commercial space. When buying as an investment, the commercial mortgage lenders are usually looking for at least 20% down and will want to see that the current businesses occupying the property are producing enough income to cover the commercial mortgage loan payments.
For those wanting to buy commercial real estate to house their own business there are some more options available. In this situation the business owner can buy a building just for themselves and need not worry if there are tenants in place. While having tenants in place who rent some of the building is better for the business owner since they have someone else helping to pay the mortgage. Business owners also have more lending options to buy commercial real estate for business purposes such...