As a business owner, your goal is to grow and increase profitability which means needing a commercial property to house your operations. Owning the building you conduct business out of is one of the most cost-effective decisions you can make. You avoid costly lease agreements, have more control over the efficiency of your equipment, and so much more.
Deciding what property is best suited for your company’s needs can be challenging, especially with the long-term implications this purchase will have on your future goals and success.
Top Factors to Consider When Buying a Commercial Property
It’s always a wise move to know exactly what you’re looking for when shopping around for a new office or warehouse to hold your business. There are countless considerations, but below are the top ten most impactful that needs your due diligence before committing to purchase the commercial property:
Your new property will be a significant asset to your business. However, if it’s located in a depressed neighborhood, you could experience depreciation much faster, hurting your investment. Instead, consider communities that are part of a revival effort or are already growing quickly to boost value faster.
Also, note connectivity to your location. For example, if you operate a warehouse, you would want easy access for your fleet to major thoroughfares to avoid smaller roads that often get clogged.
You want to make the best possible investments for your business, and a property valuation can help you determine if a commercial property is worth it. Several elements factor in, including:
- Estimated property value compared to other properties in the area
- Income the real estate could generate
- Existing infrastructure
- Property age and condition
- Cost to replace the building should it get destroyed
- Tax rates
Having a clear snapshot of a prospective property’s value will prove invaluable in your decision-making process.
Commercial Property Insurance
Even though this article covers commercial property purchases, you still need a comprehensive insurance policy protecting it even if renting or leasing. While this isn’t legally required, your lender will likely expect you to have a policy with specific coverage limits. Plus, with this type of protection, property damage gets covered.
Specifically, commercial property insurance safeguards the physical assets your company owns. For example, the structure, equipment, and even inventory you store on-site. Some examples of how these policies protect you include:
- Your business gets broken into, and goods or equipment are stolen
- Fire damage destroys your employee breakroom
- Some of your technological equipment, such as computers or monitors, get damaged after lightning strikes your building
- A storm knocks out power, and your refrigerated products spoil
- Your business operations are interrupted due to your roof being damaged by a tornado
Fortunately, this insurance is relatively affordable for most companies, and you can easily purchase commercial property insurance online.
While it’s not uncommon for some hidden costs to be forgotten in a sales listing, it is crucial to know what ongoing charges are associated with a commercial property. Before getting into any purchase agreements, be sure to thoroughly discuss and estimate these costs and the impact they will have on your business’s budget and overall property value.
At the end of the day, it’s your due diligence that will determine whether a commercial property is worth the investment or not. Don’t hesitate to work with an outside real estate consultant to help you get all the details needed to make a smart decision about your purchase. They are experts in the real estate industry and know exactly what to look for and where to locate that information.
As a growing business, you probably already know the importance of scalability. Any property you consider should provide some level of flexibility so you can continue to expand your operations on demand. You likely don’t want to be shopping for another location in the next few years, so choose wisely.
Your future business location will host employees, guests, vendors, and more, so pay attention to how accessible the property is. Is there ample parking? What about service entrances to avoid clogging your lot? Also, keep in mind how individuals will reach your facilities. Bus routes and other public transportation options should provide services within a reasonable distance of your location.
From an investment perspective, if you are considering a building that would house your business and rent out open space to other companies, vacancy rates are crucial. This metric can help you determine what return on investment to expect from a commercial property. For example, if the building already has existing tenants, it has a low vacancy rate and is already profitable. This adds significant value to your purchase from the start.
On the other hand, if the building is mostly empty (high vacancy), you will need a significant marketing budget to attract new tenants. This can be detrimental to your investment unless you can quickly fill up with paying occupants.
Even the smallest of details can add up quickly and impact the value of your purchase and overall operational costs. For example, you notice there is a gutter that has detached and creates a waterfall that hits the side of the building when it rains. This could mean there is a property defect elsewhere where water has pooled under the foundation or in one of the outer walls. Such a condition could mean filing a claim with your commercial property insurer for the damage, which would raise your rate.
The Take Away
It takes dedicated time and effort to vet any commercial property being considered to house your business. This isn’t a process to cut corners on and requires an understanding of what it means to own this type of real estate. From valuations to geographic research and buying the right commercial insurance policy, there is a lot to consider, but the long-term benefit to your company will be worth it.