Tips on buying commercial real estate

You wake up early and start some coffee, go out front and grab the paper before sitting down and starting to read. As your skimming the paper your eyes get dragged to the commercial real estate listings. You begin to wonder what would be involved in real estate business and if this may be an endeavor your interested in.

There are always quit a few questions when it comes to getting involved in the buying and selling of commercial real estate. So today we are giving some of the common questions you should ask yourself before getting involved, and some answers to those questions!

Let’s begin with the questions you need to ask before diving into the commercial property market.

  • What purpose will this building serve? Will this building hold some sort of business or will you rent it out? Maybe your thinking of building equity? Knowing why your buying a building is essential for finding one.
  • Is it essential to buy this property, or could you lease the property?
  • What is your current financial situation in terms of making a down payment? You can’t dive into the market well without secure funding’s and the ability to spend money to make money.
  • Will you be comfortable with partnering up, or do you need to be the sole owner of this property?
  • What does your commitment look like? Commercial real estate involves a long term investment of time and risk tolerance.
  • Do you need a property manager? Or are you ready to act on the duties of a landlord?
  • Last, but certainly not the least important. Are you ready to make a purchase of this size, so that time is not wasted, and you can start turning a profit as soon as possible?

These questions are vital to starting and progressing into the buying and selling of real estate of any kind, not just commercial. Real estate business can be risky and you shouldn’t bet your entire life on it.

This is where real estate agents can come in and really help set you on the right path in the real estate business. Often it is great to think about doing everything on your own, but to do so in such a business is ill advised, and may prove to be a quick end to the venture.

Real estate agents are able to provide you with the needed information that will help you understand the new terms and lingo of the real estate world that is essential for budging an inch.

some examples are the following:

  • Loan-to-Value (LTV): a ratio of the asking price from the lender versus the total value of the property.
  • Debt Service Coverage Ratio (DSC): This is basically what will help you understand how much you can afford each year in debt payment with your income.
  • Capitalization Rate (Cap Rate): This represents the income of the property, divided by the total value of the property.
  • Cash on Cash: Your annual income over how much you have invested, showing the positive or negative gain.

There is many many more terms that will come up in the process of buying or selling commercial property, so it is important to have someone who can help explain these things to you. Staying informed is the best possible thing you can do in this field.

Next up a quick tip on looking for property. Don’t settle on a place right away. This is a big point. If you happen across a property you like, that is wonderful, but if you just started to look, then keep looking. Don’t miss the opportunity to familiarize yourself with the process or skip out on other possibly better properties that may be present.

That’s about all for today. We hope this real quick insight into the world of commercial real estate has you thinking more seriously about what it would mean to dive into this kind of market! If you have questions, or would like assistance in your commercial real estate plans, give us a call or email us! We at Kontor will keep you ahead of the curve!

Phone: (612)567-1810



Leave a Reply

Your email address will not be published. Required fields are marked *