Commercial Property Acquisition Guide


Canadian Entrepreneur with Global Invest, on a mission to help people invest in real estate to create generational wealth.

Many starters in investment contemplate building, renting or buying a house. However, this is not the only way, nor always the most profitable way for investors to benefit in the long run. Investors may also consider purchasing a commercial property. The rent and income from the property can enable investors to realize their dream of owning property.

A commercial property enables investors to get involved in various activities. Investors must be meticulous while processing a commercial investment as it requires significant financial transactions.

In an acquisition process, there are several steps investors need to be aware of to avoid setbacks. So, care must be taken by learning about commercial property acquisition beforehand. Real estate investment is not just about building a long-term asset. However, investors’ money can grow and fructify over time, making the value of their building increase.

Pros And Cons Of Commercial Properties

Commercial space owners and residential property owners do not face the same realities. Despite the existing constraints of this market, there are numerous pros to venturing into a commercial space. Tenants’ stability and flexibility are the two main pros of commercial leases.

Entrepreneurs are typically in quest of ways to grow their businesses. Thus, a constant change of premises is not suitable for business. Generally, customers need references and a fixed site to locate enterprises easily.

Basically, commercial leases are long-term; they are often valid for a period of five or 10 years. That being said, commercial leases often have flexible terms, and conditions that are negotiable by both parties. As per their objectives, investors can agree on a net rent, a double net rent or a triple net rent. In case the same building is occupied by several enterprises, insurance premiums and property tax are then dispatched.

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Before embarking on a project of this magnitude, investors should be aware of the risks involved. First of all, commercial property down payments can be very high. Moreover, renovation and expenses might be exhausting, as the new owner will endorse the reimbursement of these expenses.

Another important point to consider is the owner’s responsibility for the maintenance of the building. Furthermore, the owner of a commercial building must always keep a safety cushion in order to face the unexpected. Finally, there is the issue of tenants’ management. Signed leases and good relationships do not spare tenants from their responsibilities. To avoid bad profiles, tenants should be managed with a lot of energy and time. Before negotiating commercial leases, plan a good research strategy and a credit investigation. It sounds easy, but it is a huge task.

Purchasing Commercial Properties

To understand commercial property purchases, investors should evaluate their needs. To figure out what is best for them, investors should reflect on the following questions.

• Is it too early for my enterprise to make long-term decisions?

• What are the pros and cons of purchasing a commercial property for my enterprise?

• Does the desired building suit my expectations?

• Do you wish to settle your premises in the same location over the coming years (usually within 5 or 10 years)?

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Making the right decisions can influence the growth of investors’ businesses.

Getting A Commercial Mortgage To Finance The Purchase

I’ve found the most challenging part of buying a commercial property is the quest for financing. Investors can go through profile screening to obtain a loan from financial institutions. This screening includes investor’s profits, a balance sheet and a fairly promising budget forecast.

The lender usually does not finance the project entirely, but partly, considering the value of the commercial properties. Generally, I’ve found the financing percentage varies between 75% and 85%, considering the building type, the resale probability and many other parameters. The loan amortization period is usually between 15 and 25 years. This period can be extended when investors’ enterprises have short-term liquidity.

Business Insurance

Business insurance is a crucial element of the purchase process. Business insurance protects investors and their team of employees in case of dismal outcomes. This enables investors to endow coverage for high-risk situations, as the finances of the enterprise won’t cope with the damages incurred or caused. Due to unforeseen events, financial repercussions might be irreversible and lead to the bankruptcy of investors’ enterprises.

The purchase of insurance is not a trivial matter; investors’ professional activities should be considered. Commercial insurance can cover design defects, breach of contracts, disappearances and misappropriations leading to losses. The various clauses of this insurance shall be stated and studied.

Accounting Policy And Taxation

Before seeking mortgage loans from banks, it’s important to consult with accountants. Accountants can establish the necessary budget for the realization of investors’ projects. The objective is to determine the profitability of commercial properties through several evaluations.

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An accountant is typically responsible for the financial planning of purchases and business plans. Accountants’ expertise enables investors to find solutions to finance the purchase of commercial properties. They are the right people for sound advice on commercial properties and guidance in decision making. I’ve found that without an accountant, investors’ real estate projects are less likely to survive competition and external risk factors.

Notaries And Property Legislation

Besides an accountant, notaries can play a great role in the success of an investor’s real estate project. As landlords, investors must be aware of the laws governing their relationships with tenants. These laws protect investors from irregularities and their various sanctions. It yields investors strategies to secure their investments.

Since investors have to examine property titles rigorously, a notary has to scrutinize all their documents. The notary can detect the slightest anomaly which might impede on acquiring a building. Certain leasing conditions might be financially detrimental to investors. A notary who specializes in corporate law serves as a legal advisor to investors.

Investors don’t need to confine themselves to corporate offices. Workspaces for professionals or businesses as commercial properties can also house rental apartments. Investors can also decide to manage their property themselves or delegate this task to competent managers. In any case, investors will likely need a team to assist them in the acquisition of their commercial property.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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