How To Buy Commercial Real Estate

September 25, 2023

Commercial properties can be great investments to add to anyone’s portfolio, but the process of getting into these investments isn’t simple. Whether you’re buying retail space, or thinking of one of the other types of commercial spaces, it’s important to make sure you do your due diligence.

These are large purchases, but you want to make sure that your purchase has the potential for growth. There are a number of reasons why commercial investments can be lucrative, long-term investments, but that all starts with getting the process started the right way.

What Is Commercial Real Estate?

Commercial properties are split into five main categories – hospitality, industrial, multi-family, office space, and retail. Hospitality is a space that services travelers, covering things like hotels or other accommodations. Industrial properties are large office spaces or other manufacturing and assembly operations. Multi-family spaces are essentially residential properties with more than one unit, and can also include assisted living facilities. Office space properties are things like office buildngs, and retail covers businesses that sell goods and services.

Along with falling under these categories, commercial properties are also classified into three different grading classes. Class A represents the buildings that are of the highest quality. Class B buildings are still of good quality, but are generally older and cost less when compared to Class A buildings. Class C buildings are the lowest grade, often because they are older, require maintenance, and have a less desirable location.

How to Get Involved With Commercial Properties

Buying a commercial property isn’t like buying a residential home. Commercial real estate is generally more expensive, and securing funding for this purchase can also be more difficult. The first step in buying a commercial property is to determine what you want from the building. Think about your long- and short-term financial goals, and what you want for through in investment. Using the space for use with your personal business is different than finding a space for investment purposes.

Working with a trusted commercial real estate agent can help discern some of the differences, but they can also help you clear away some of the confusion. They can help you choose between different types of investments like development or fix and flips or finding passive investing. Another important step they can help with is securing financing from an appropriate lender.

Because of the size of these transactions, it’s important to compare several lenders before settling on the one you choose. Inquire about potential penalties, and the loan-to-value (LTV) ratio, which will help determine how much they’re willing to loan. They may ask for collateral, as well. But they will be able to instruct you on all of your potential lending options.

It’s also crucial to surround yourself with a trusted team of professionals. This might start with a commercial realtor and mortgage broker, but you may also need an attorney, accountant, or property manager. For more information on the differences between the types of commercial real estate and the steps to get involved, reach out to the experts at Denver Commercial Properties.