Purchasing commercial real estate is different than purchasing residential real estate. If you’re looking to engage in a commercial real estate transaction, especially for the first time, you should be aware of what’s involved. Closings often take longer. Properties are often sold as-is, making due diligence extremely important. The average commercial real estate transaction is also considerably more expensive than the average residential transaction, meaning that carefully choosing a lender is crucial.
It’s also important to gauge the market and understand what current conditions could mean for you as a potential real estate investor. For instance, according to the Motley Fool, “the total dollar volume of commercial real estate transactions was $647 billion in 2023, down from $1.14 trillion in 2022.” For some investors in 2024 or 2025, that could mean getting a great deal. For others, it could mean making a bad investment.
Working with a real estate advisor with both general knowledge and hyperlocal knowledge of commercial real estate could be the difference between those two extremes.
That having been said, here’s a general & high-level guide for what you should do when attempting to buy commercial real estate.
7 Steps to Buying Commercial Property
Not sure where to get started as a commercial real estate investor? This high-level overview could help:
- Research & Market Analysis: For the reasons listed above (and more), it’s critical to research the market thoroughly. A good agent or advisor can help substantially here. This step not only involves understanding macro trends but also understanding the different types of commercial properties available to you — be it office, retail, or industrial space. Understanding local zoning laws is also essential as a commercial real estate investor.
- Determine Your Budget & Financing Options: Knowing how much you can afford is critical to calculating your potential cash flow and ROI. It’s also important to know various financing methods, including senior loans, bridge and mezzanine financing, capital raise, joint ventures, and equity purchases, etc..
- Secure Financing: Once you’ve decided how much you can afford and how you’re going to pay, it’s time to secure financing.
- Find the Right Property: Choosing a property isn’t something to enter into lightly, especially since most commercial real estate is sold on an as-is basis. You’ll want to think critically about how the property will meet your needs and goals, if it has the potential to make you money (and how much and for how long), as well as what kind of issues may arise, like zoning problems, environmental problems, condition or appearance issues, and more.
- Negotiate & Make an Offer: Once you’ve made a decision on a property and secured financing, it’s time to negotiate. This is where a good broker can be make-or-break.
- Complete Inspections & Due Diligence: Before closing the deal, be sure you conduct various inspections, from reviewing environmental reports to looking at local zoning laws and evaluating the building’s condition.
- Close the Deal: After negotiations are complete and all due diligence is finished, you’re ready to close the deal, which usually involves completing all paperwork associated with the transaction, transferring ownership, and paying closing costs.
How a Commercial Real Estate Advisor Can Help
Having a knowledgeable commercial real estate advisor in your corner can be the difference between making a good investment and making a potentially ruinous one (we’re not exaggerating). Here’s how:
- Market Expertise & Connections: A good commercial real estate advisor knows the market inside and out, giving you an edge and filling in any knowledge gaps you may have, such as lining up debt capital on favorable terms or potential tenants for the property vacancies. Some brokers can even help you raise equity capital, so your total cash out of pocket is less.
- Navigating Complex Transactions: Whether you’re hoping to buy a building with complex environmental considerations, want to purchase without any money down, or something else, an advisor can help when the transaction in question is less than straightforward.
- Negotiation Power: Commercial real estate advisors who have been in the industry long enough not only have established relationships and reputations, but also the leverage you need to help you negotiate to secure favorable terms.
- Customized Investment Strategies: A good advisor can make you aware of investment strategies you may not have even known are possible and even connect you with the right professionals to deliver the transaction to the finish line.
Have More Questions? We’re Here to Help!
Want to learn more about any of the steps mentioned above, or special situations, like how to buy commercial property with no money down? Contact us at Tri State Real Estate now for a consultation; we’re experts in the New York and Philadelphia metro areas.