Many investors prefer commercial investment property such as small office buildings to residential properties. The leases are usually 3 to 5 years, tenants often renew more regularly and there are fewer headaches. It is also common to charge commercial tenants for all repairs and their fair share of annual expense increases and this type of cost-sharing is impossible with residential properties.
Depending on your location finding a commercial investment property can be as easy as driving down a major highway. If you don’t see many for sale signs in your area a real estate agent who deals in commercial properties. In today’s market there are quite a number of properties available and if you’re ready to buy the buffet is open.
There are small office buildings with only one or two tenants and larger ones occupied by several smaller offices. Both have the advantage of a steady income however with multiple small offices your bottom line will suffer less of an impact if a tenant moves out. No matter which type of commercial investment property you select, always perform your due diligence especially if the location is currently occupied.
Here is a quick checklist to help you as you evaluate an office building for purchase.
* Read all leases and make sure that you are willing to honor the terms. Long term tenants tend to get nervous about new owners. Your willingness to maintain or at least negotiate terms may prevent a mass exodus when you buy.
* Review of tenant payment histories over the past three years can alert you to any possible cash flow problems.
* Examine maintenance records for the past three years to determine how well the building has been maintained. If there are no records, reconsider the property.
* Obtain property tax notices for the last five years. The last thing you want is to have your deal frozen due to a tax lien.
* Review insurance policies and ask for permission to obtain copies of any claims. Verify that the property has no open litigation against it. A slip and fall last year could end up costing you.
* Conduct a walkthrough of all office spaces with the owner. Although you will still require a professional inspector, use of this visit is to evaluate the quality of tenants and see if any problems leap out at you.
While there are many additional complexities associated with a commercial investment property, as compared to residential property, there are also significant profits to be made for those investors with the desire to enter the commercial real estate market.