At first glance, a commercial real estate transaction might seem relatively simple. A buyer determines if the property suits his or her needs and agrees to purchase it. But the process is much, much more complicated, especially if you, as a buyer, want to make sure that you’re making a worthwhile investment. This is why before purchasing commercial real estate you need to engage in due diligence to better assess the viability of the transaction.
What is due diligence?
In short, due diligence is the process whereby you analyze every aspect related to the property and the parties involved. It can involve the purchase of real estate or of a business itself. While you’ll certainly want to have the structure itself inspected to identify any needed repairs and to determine the estimated costs of those repairs, there’s a lot of other issues to consider. Take into account each of the following when considering purchasing commercial real estate:
- Zoning regulations
- Environmental issues
- Existing and potential liens
- Existing and potential encroachments
- Existing easements
- Pending violations against the property
- Suitability of the property for intended use
Any one of these issues could be dispositive in your determination of whether purchasing a particular piece of commercial real estate is right for you. Yet, your assessment of the property shouldn’t stop there. Instead, you should also look at the property in light of what you want its intended purpose to be.
For example, if you’re investing in a building in hopes of receiving income from business leases, then you’ll probably want to be diligent in inspecting existing leases to make sure that you know exactly where the building stands from a financial standpoint. Also, if the physical layout of the property needs to be changed in anyway, such as leveling land for a parking lot, then you need to take into account the costs associated with that additional work.
Don’t get trapped in a bad investment
Far too many investors fail to conduct adequate due diligence, which can leave them with a bad deal that leaves them in a terrible financial predicament. There’s a lot at stake in these transactions, for sure. So, you should leave nothing to chance. By working with an attorney who is experienced with commercial real estate transactions, you can mitigate the risks and better ensure that you know exactly what you’re getting into.