10 Things to Remember About Doing Your Due Diligence in Commercial Real Estate
harkins / April 6, 2016
Investing in commercial real estate can be a lucrative venture. But there are some common mistakes that investors can run into when doing their due diligence in commercial real estate. Being aware of these potential pitfalls can make the process of acquiring property much easier.
Value the Property Correctly
Be conservative when underwriting a deal. Make sure to check the sales comps and other available properties that are on the market. Contacting commercial brokers in the area that might be more active and inquiring about local property values and sales is a good idea. Then you can adjust your valuation based on your findings.
Understand Lender’s Underwriting Requirements
Today, lenders are quite conservative looking at several aspects of a property so you should speak with other lenders first to see the amount they would consider loaning for the property. This way you’ll be able to avoid any surprises later and do so before spending time, money, and energy on the project.
Ensure The Property Complies with All Current Municipal Building Codes
After purchasing a property, sometimes the buyer finds that it doesn’t meet ADA (handicap) codes. This is found out when the contractor pulls the permit from the city for improvements to the building. A city inspector comes to inspect the contractors work and discovers the violations. You should have a qualified contractor, architect, or space planner inspect the property to ensure that meets all requirements.
Anticipate Issues with Existing Tenant Leases
There are several provisions that can be included to the existing lease of which the buyer should be aware. These can include cancellation provisions, contraction provisions, caps on pass-through expenses, fixed option rates, among others. A tenant exercising these provisions could devalue the property. You should have a real estate attorney look over the lease if you’re not familiar with commercial real estate leases.
Walk Each and Every Unit
If you’re going to invest a large sum of money into a property you deserve to know about all issues. Going into each unit, even if you don’t want to disturb the tenants, will ensure that you’re fully aware of what you’re investing in.
There are several pitfalls that an investor can fall into while doing their due diligence in commercial real estate if they’re not prepared. These tips will ensure that you’re getting the property you’re paying for and are ready for any unexpected surprises. If you’re looking to invest in commercial real estate, contact Harkins Commercial today.
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