Purchasing commercial real estate is an excellent investment opportunity. But it is also a huge decision that calls for considering a lot of factors for a safe investment. 

After all, unlike residential properties, commercial real estate involves different rules, risks, and potential rewards too. 

So, before you take the plunge, there are several crucial things you should evaluate. 

All in all, here are the seven most important things to consider before buying commercial real estate: 

1. Condition of the property 

Unlike residential properties, where a bit of cosmetic work can go a long way, commercial properties may require extensive renovations to meet your specific needs. And to that end, professional pre-purchase inspections like a PCA, a balcony inspection service, etc., are must have.  

These assessments will thoroughly inspect the property’s condition, including the structure, vital systems, and any potential environmental hazards. Also, you’ll get cost estimates for necessary renovations or upgrades. 

2. Location

The age-old real estate mantra of location is just as applicable to commercial properties as it is to residential ones. That’s because the location of the property can make or break your investment. 

And to that end, you’ll want to analyze the neighborhood, surrounding businesses, accessibility, and future development plans for the area. 

Here are a few questions you should seek answers too when it comes to the property’s location:

  • Is it a high-traffic zone? 
  • Is there a sufficient parking area? 
  • Are there any zoning restrictions that could impact the property’s value? 

2. Property use and zoning 

Before you start your property search, you should have a clear understanding of how you intend to use the commercial space. 

For instance, whether you’ll use it for your own business operations or will you rent it out to other tenants is something you should be clear about.  

Also, there are various commercial property types such as retail, office, and industrial. And all have varying zoning requirements. 

So, make sure that the property you’re considering is zoned for your intended purpose.

4. Financing and operating costs 

Commercial real estate financing is entirely different from residential mortgages, and the requirements are way more stringent. 

For instance, you’ll need a higher down payment, often 20% or more. Also, be prepared for lenders scrutinizing your business plan, cash flow projections, and credit history. 

Moreover, you’ll have to consider operational expenses like property taxes, insurance, maintenance, and utilities, which can be higher for commercial properties. 

So, it is always advised to work with a lender specializing in commercial real estate to understand your financing options.  

5. Income potential 

If you are planning to rent out the commercial space, you’ll need to carefully analyze the property’s income potential. And this will involve studying the local market rates for similar properties, vacancy rates, and any unanticipated changes that could affect demand. 

Also, it makes sense to consider the potential tenant pool. 

Whether or not the property’s location and features will appeal to your target tenants is something that should be factored. For instance, if the property has smart cost saving features like solar powered street lights, it might be worth investing in. 

All in all, a thorough market analysis will help you estimate your potential rental income and determine if the investment will be profitable.

6. Future exit plans 

You might intend on holding onto the property for the long term. But it is also essential to have an exit strategy in place. 

You can do so by seeking answers to questions like: Will you eventually sell the property or you’ll pass it on to a family member? 

Also, picture all such factors that can impact your ability to sell the property or transfer its ownership. This includes the property’s liquidity, market conditions, and any lease agreements with tenants.

7. Consult with professionals 

Purchasing commercial real estate involves a lot of complex considerations, be it legal, financial, or operational. 

As such, it is crucial to be in touch with professionals who can guide you through the process and protect your interests. 

These professionals can be anyone from commercial real estate agents to attorneys to accountants and property managers. 

To sum up 

Investing in commercial real estate can be lucrative. But it’s not a decision you should take lightly; more so since there’s hundreds of thousands of your hard-earned money at risk.

So, do carefully consider the factors that we discussed and you can increase your chances of making a successful investment.