Study the commercial property market. This is critical, for you might not be ready to get into this aspect of real estate.
The commercial field is made up of many different elements, from income producing property, such as apartments, to industrial storage and manufacturing properties. Look at all the options and decide if this is what you want to get into versus investing in the stock market, mutual funds, etc. Just because you hear that someone made a fortune in commercial real estate does not mean you will, so study the market first..
Know your cash situation. Generally, most commercial property opportunities will take approximately 20 percent of the purchase price in a down payment. There are very few “no down” deals, as we hear on TV. Often you will need at least 20 percent plus closing costs, loan fees, and miscellaneous charges. We usually quote at least 3 percent of the purchase price, and this could go up depending on the loan points.
If you do not have enough cash to make the 20 percent down, look long and hard at getting “hard money” to help you. First, the lender might not allow it, and second, it is really costly. Don’t think that every seller will “carry back” some of the purchase price. Again, the lender might not allow it. See a couple of commercial lenders and talk with them about what you have in mind, and go from there. Listen to their advice. It might not be the right time for you to buy.
Know the commercial property inventory. How many buildings of the size you want are in the market where you want to be? Look at the number vacant and/or leased. Look at the costs. An apartment building at $50,000 a unit, or door, might look great until you find out an adjoining building just sold for $40,000 a unit.
If you are looking for specialty properties such as a convenience store, a mobile home park, or a self-storage complex, compare availability and prices. As in any shopping, comparing is just a smart thing to do.
A good commercial real estate agent will take you through each step. Take your time, don’t get too eager, and rely on the judgment and opinions of the agent you are working with. If the agent is trying to force the issue and hurry you, it’s probably the wrong agent.
Ron Largent is a Realtor, business owner and longtime Redding resident. He can be reached at ronlargent@yahoo.com or ronlargent.yourkwagent.com.
