Robert Poe, CCIM, commercial real estate broker Phoenix, demystifies the process of purchasing a commercial property for your business. From knowing your parameters to finding a lender to making modifications to the property, discover the 12 steps to ownership and understand what to expect.
Step 1—Plan and Prepare
It’s always wise to meet with your commercial real estate broker and discuss the value of buying a commercial property versus leasing. Will purchasing a property contribute to your business’s success or could it put a strain on you and your business? If buying is the right choice, then discuss your parameters with your broker.
Step 2—Broker Identifies Properties
Your broker will research options for you to choose from based on the parameters you identified. Select the best options and then your broker will schedule tours.
Step 3—Tour Properties
This step helps you to uncover what you really need for your business and think through the critical issues. This is an opportunity to discuss what is important for your business. During the tours, the broker can help you understand the ways that the property can be modified to meet your business’s needs or whether it just won’t work.
Step 4—Choose a Property
Select your top property (or two) for an offer. Your broker will review recent comparable properties to help you come up with an appropriate price to offer.
Step 5—Letter of Intent
A letter of intent written by your broker is presented to the listing broker to review with the seller. This is an opportunity for negotiations between you and the seller on the main deal points: price, how much earnest monies will be put in escrow, the length of the due diligence period, the closing date, and any other issues.
Step 6—Purchase Contract
This is the time to open escrow, and the deal that was agreed to in the letter of intent becomes the basis for the purchase contract. Once that is completed, all parties review, negotiate as necessary, and sign it once an agreement is reached.
Step 7—Find a Lender
It’s worth the time to look around at various lenders because they have different interest rates, prepayment penalties, and loan terms. Find the loan that’s right for you, but be prepared: a commercial loan is different from a residential loan. Ask your broker to explain the difference.
Step 8—Do Your Due Diligence
The due diligence period, or feasibility period, is the opportunity to discover whether the building is what you think it is. Your earnest monies remain refundable during this time. Make the most of this chance to ensure you are buying what you think you’re buying.
Step 9 — Prepare for Modifications and Renovations
It would be unusual to find a property that meets all your business requirements. Modifications are usually necessary to achieve exactly what you need. You should get bids from several contractors for the renovations—and the bids should not cost you anything! Find out from your lender if the renovation costs can be part of your loan.
Step 10 – Close of Escrow
This is where all the hard work over the last few months comes together, and it is a step in which you need to work in partnership with all your advisors. The final purchase money will be due, the loan closing will take place, and any last details of the escrow duties and paperwork will need to be completed. Depending on the type of property purchased, there may be specific documentation needs that you need to discuss with your broker to finalize. A good practice to ensure a seamless closing is to perform a final review of the purchase and sale agreement (PSA), escrow paperwork, and loan documents before you sign.
Step 11—Taking Possession of the Property
This is where the real work begins. Setting up utilities, getting specific permits, cleaning, handling maintenance, and getting familiar with the property and its characteristics are all to be completed in this step. You can rely on your sub-contractors and vendors to get most of the necessary work done, but some of it will be up to you as the new owner. However, your broker can be a valuable resource at this point as well.
Step 12—Post-possession Operations and Ongoing Systems
At this point the property should be ready to go into full operation as an investment or business asset. There will possibly be loose ends to follow up on, rent collection procedures as per any rental agreements, and upgrades to equipment and fixtures that were not completed in Step 11. Accounting procedures and administrative tasks need to be implemented and monitored to ensure the timely payment of bills and the collection of rents that are due.
Deciding to purchase your business property is a significant leap forward. Understanding the process ahead of time will keep you on track and help you to avoid anxiety. A good commercial real estate broker will do that too!
When you’re buying a property for your business, you want to be represented by the best. We know commercial real estate and we support our clients with exceptional advocacy and diligence. Our goal is to help you meet yours. Call 480-306-4399 or email info@royalcre.com.
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