The decision to invest in commercial real estate is a great one! Not only will you be leveraging your investment, you’ll be adding revenue streams and minimizing your tax liability. Investing in commercial real estate can be creative and wildly fulfilling by supporting local businesses and transforming the local economy. Whether you’re looking for retail, office, multi-family, or industrial flex, Andrea brings the market knowledge, strategic insight for winning offers, and negotiation skills to secure the right property at the right price for you.
Commercial real estate has less consumer protections than residential real estate, so it’s even more imperative to have an experienced agent advising, navigating, and negotiating on your behalf.
Southern California is one of the best places to invest in real estate in the United States and there are many reasons why people invest in the commercial real estate market. Scroll for more information on the different reasons to invest and a brief overview of the process:
The Process
After the consultation and understanding your investment goals, Andrea will work diligently in identifying properties that fit your vision, including properties not on consumer facing websites. Here is a brief overview of the process and what to expect:
The Offer
1. LOI – Letter of Intent – Many offers begin with a non-binding Letter of Intent, or LOI, to negotiate the key deal points. Once the deal points have been agreed upon, the agent will draft a Purchase and Sale Agreement for your review.
2. Proof of Funds – When submitting an offer, proof of funds are required to show the buyer can close on the deal. The proof of funds should include money for the down payment and closing costs.
3. Pre-Approval Letter – If you will need to get a loan to service the debt for the commercial property, a pre-approval letter from a financial lender may be required for the seller to accept the Purchase and Sale Agreement.
Escrow – Contingencies and Due Diligence
The escrow period for commercial real estate is usually much longer than residential real estate. In most agreements, a contingency period is negotiated, which is a specified timeframe in the purchase agreement when the buyer can conduct due diligence and satisfy certain conditions before fully committing to the purchase. The contingencies can include:
- Physical Inspection
- Financial Contingency – Buyer to secure financing and/or a loan
- Appraisal
- Legal – Investigation into Title, LLC’s, and more
- Environmental Inspection – A Phase I environmental report is required for most lenders.
After the contingencies have been waived and the buyer is satisfied in their due diligence, it is time to fund the purchase and close the deal! Andrea is a full-service commercial agent and can assist in leasing vacancies for your new commercial purchase.
Contact Andrea for a free consultation on investing in commercial real estate!
More Information
Owner-User Buyers
After a thorough market review, for some clients, owning the real estate of your business may be the more advantageous financial decision versus leasing the unit. We recommend exploring this option for clients:
- Well-Established Businesses
- Extensive and expensive build out needed for their new location
- Take advantage of SBA loans for lower down payments
- Price per square foot is less with a loan versus a lease.
When a business owner occupies 51% of the property, they may be eligible for SBA loans that have much lower down payment requirements than more traditional investor loans.
Investment Properties
After investing in commercial real estate offers several powerful benefits for both new and experienced investors. Some key advantages include consistent cash flow, appreciation and equity growth, tax advantages and deductions, diversification in investments to hedge against more volatile markets, and creating generation wealth for your family and loved ones.
Core and value-add properties are two distinct investment strategies in owning commercial real estate. Core property investors are more conservative – looking to generate stable income with very low risk. Value-add is synonymous with “growth” and associated with moderate to high risk properties. Value-add properties may require renovation, deferred maintenance repairs, and/or renting to new tenants to create a higher cash flow and capitalization rate.
1031 Exchange
A 1031 Exchange is a powerful tool in the buying and selling of commercial property. It allows real estate investors to swap one investment property for another and defer capital gains taxes. Investors must swap for “like-kind” properties, but can change asset classes as long as the property value is similar.
In a 1031 exchange, time is of the essence and it is advised to work with an experienced broker to expedite and guide you through the process. You will need to start the 1031 exchange process during escrow of your previous property and will have 45 days to identify 3 properties for the exchange after the close of escrow on that previous property. Properties are considered identified after acceptance of a Purchase and Sale Agreement. The investor has 180 days to close after the start of escrow to complete the exchange and defer the capital gains tax. This cannot be used for primary or secondary residential properties.
