Commercial real estate can be a lucrative investment, but it’s important to know what you’re doing before making an offer. In this guide, we will walk you through the process of making an offer on a commercial property. We’ll discuss how to make an offer on commercial real estate. So whether you’re a first-time investor or just looking for some tips on making an offer, this guide is for you!
There are many different kinds of commercial properties, from office buildings and retail outlets to industrial facilities and hotels. You’ll need to take into account your goals and what would fit best with them before deciding on a specific type of property.
Key Takeaways
- When making an offer, include specifics like purchase price, basic terms of financing, and other contingencies.
- Research the commercial property you’re interested in and make sure it meets your needs before putting in an offer.
- Have a professional real estate agent negotiate with the seller on your behalf to ensure that you get a fair deal.
Buying Commercial Real Estate: How To Negotiate Effectively
1. Consider your needs
When you’re looking to buy commercial real estate, there are a lot of factors that go into the decision-making process. What’s the current market value? Is it in a good location? What kind of potential do you see in this property? How much can you afford? Pay close attention to these questions.
But before you start looking at numbers and locations, think about what will make your business thrive. What are your goals for this property? Do you want it to be an office space for employees? Or could it be a retail space for customers? Maybe it could be both! If you know exactly what you’re looking for, then it’ll be easier for you to find the right place.
2. Plan your budget
Before you start looking at properties, it’s important to have a budget in mind. You don’t want to fall in love with a place that’s way out of your price range—but then again, sometimes you just can’t help yourself! When you visit a potential property, take note of what amenities are available and how much they cost. This will help you determine whether or not the property is financially viable for your business.
3. Find a good advisor
If you don’t have experience looking at real estate, it’s a good idea to enlist the help of an expert in commercial real estate. An experienced advisor can help you find a property that will meet your needs, as well as negotiate on your behalf. This is especially important if you’re buying property for the first time—you want someone who knows what they’re doing.
4. Conduct a thorough due diligence
As a property owner or a future property owner, it’s important to take your time and perform a due diligence process on any property before you commit to buying. By taking the time to go through all the records, check for zoning restrictions, and investigate any potential issues with the property, you can rest easy knowing that when you sign that contract, you’re going into it fully aware of what lies ahead. This is an essential step in becoming a property owner – one that should never be overlooked!
5. Make an effective offer
Offers are an important part of commercial real estate transactions. They’re what you use to indicate how much you’re willing to pay for a property, as well as any other terms and conditions that might be important to you (such as the closing date). Your offer should be written in a clear and concise manner so that it doesn’t leave any room for ambiguity or confusion.
Things You Need Before Making an Offer
6. Before you close the deal
It’s important to do your due diligence period. To achieve this, it is common practice to request the seller’s most recent tax returns, utility bills, and a summary of maintenance and renovation work done on the property (going back five years, typically).
You should also inquire about any recent environmental evaluations performed by the vendor to confirm the absence of site contamination or hazardous building materials. Inquire whether or not the assessor has been approved by your financial institution. If it does not, your bank may demand a second opinion from a qualified professional. If no up-to-date, credible evaluation is available, you can always commission one yourself.
Environmental concerns are among the most common issues found during investigations. “They can have an impact on worker health, the building’s marketability, and the appeal to get financing from a bank.”
Also, during due diligence, you should receive an assessment of the building’s condition (the business equivalent of a home inspection), an appraisal (particularly for larger properties), and a title search.
For instance, even if the parking lot isn’t officially recorded as invading neighboring property, a title search may reveal this fact.
You can either change your mind about the acquisition or negotiate a lower commercial real estate purchase price if problems are found during due diligence.
If you want to know more about due diligence and what is it, here is a more in-depth article about it.
7. Be respectful of all parties
When you’re buying a building, you represent not only yourself but also the entity that’s financing your purchase. It’s important to conduct yourself with respect and integrity at all times, whether you’re negotiating with the seller or dealing with other parties involved in the transaction (such as lawyers).
How to make an offer on commercial real estate
Here are some ideas on how to make an offer:
Letter of Intent
In many different sorts of deals, including commercial real estate deals, a letter of intent (or LOI) is a crucial document. Indicative of the parties’ seriousness in proceeding with a real estate purchase is the use of such non-binding agreements.
Consistent documentation of an agreement’s terms is crucial, which is why letters of intent are so useful. They also aid in making complex negotiations more understandable and manageable. In commercial real estate, an LOI can serve as a protective measure for both parties as they work toward finalizing a more binding agreement.
Although a letter of intent cannot be legally enforced on its own, it may include provisions that would if included in a formal purchase contract, such as a promise to keep information confidential or to negotiate in good faith. That’s how they’re like an MOU or a term sheet (MoU). Contrary to term sheets, the information in an LOI is always presented in letter format.
Purchase and Sale Agreement
A purchase and sale agreement is a legally binding contract that outlines the terms of a commercial real estate transaction. It contains all relevant information about the parties involved, including their names and addresses, as well as details about the property itself.
Attorney Review
Purchasing or selling a property can be an exciting and important step. To safely move forward, it is critical that you invest in legal protection and have the purchase and sale agreement reviewed by an attorney. Expert legal review can detect any legal issues that could void the agreement, avoiding costly legal fees down the line. Don’t skip this crucial step on your journey – make sure to have an attorney check over the agreement before signing!
Accountant Review
1. Broker Brochure
Brochures or flyers should be made in a way that grabs people’s attention and gives them a quick overview of the listing. Flyers are short, uncomplicated documents that include demographic data, a summary of the offering, a description of the property, and a few highlights.
2. Seller Financials
The seller’s financials should include a business plan, cash flow statement, and balance sheet. These documents can help the buyer evaluate the seller’s financial position, determine whether the asking price is fair, and decide whether to proceed with closing.
3. Performa
For each given asset, the performa is the ideal case scenario. The performa is included in the broker brochure, but you need still to do your own research and come up with your own numbers. Find out where you think the rents could go, and if there are any costs you can cut.
4. Your Numbers
The final step is compiling data and statistics from your research and objectives.
How To Make An Offer On Commercial Real Estate
How do you write a strong real estate offer?
A strong real estate offer is a well-written document that clearly defines all terms of the transaction and should be consulted by a professional real estate broker. It should not contain any surprises for either party, and it should be based on realistic assumptions about the property and the local market.
What questions to ask when buying commercial property?
1. How long has the property been on the market?
If it’s been on the market for a while, there might be something wrong with it that you don’t know about.
2. What are the most recent comparable sales in the area?
You can use these to help you determine if the price seems fair.
3. What are the building’s current and projected expenses?
This will help you determine how much money you need to make your investment profitable.
4. What is included in the sale?
Make sure you know what is included in your price before making an offer.
What should be included in a commercial offer?
The following should be included in a commercial offer:
- Income.
- Expenses.
- Mortgage.
- Cashflow.
- Payment and Refund in Cash.
- The yield on Capital.
- Investment Costs.
What is a Commercial Purchase Agreement?
Through a commercial purchase agreement, a seller can strike a deal with a qualified purchaser to sell their property in exchange for cash or other consideration. Earnest money, often known as “consideration,” is usually put down by the buyer at the time the contract is signed.
What is a 1031 Exchange?
The capital gains or losses or capital gains tax that would normally be due upon the sale of an investment property can be deferred through the use of a 1031 exchange, which is a mechanism available to real estate investors.
Investors who wish to improve their properties without incurring additional tax liability often employ this strategy.
Conclusion
Investing in commercial property can be a great way to generate income, but it’s important to know how to make an offer. By following the tips in this guide, you’ll be able to put together a strong offer that will give you the best chance of getting the property you want. And if you’re ever unsure about what to do, remember: I am here to help. Just give me a call or schedule a free consultation and I’ll walk you through the process step-by-step.
