Commercial real estate is a major investment. Before dumping a lot of money into a property, you need to make sure that you’re getting what you bargained for. That’s why prior to signing any contracts or purchase agreements, you should perform your due diligence to make sure you know every thing about the property before it becomes yours.
What goes into due diligence?
In its broadest terms, due diligence is merely the investigatory process utilized to confirm all facts pertaining to a piece of real estate. But when it comes to commercial real estate, due diligence can include an audit and investigation into a lot of different areas. To start, you’ll want to analyze the area of the property to ensure that it’s suitable. Then, you’ll want to dig into the financials of the property. You can calculate gross rental income as well as other income and compare that to expenses such as property taxes, insurance, utilities, maintenance, marketing, and expected payroll. You’ll also want to take into account any rehabilitation that the property in question might need, such as updated plumbing or electrical.
But the due diligence process doesn’t end there. You’ll also want to assess any existing tenants and their lease agreements to get a clear sense of the quality of clients you’ll be obtaining and working with. Marketing costs should be taking into account as well as any expected construction that you’ll need to undertake to make the property suitable for your needs.
Don’t skimp on due diligence
This is an extremely broad view of due diligence in the commercial real estate context. Entire books can and have been written on the subject, so it’s extraordinarily complex but critical to securing an advantageous business deal. To ensure that you’re protecting your interests as fully as possible going into a real estate transaction, you might want to work with an attorney who is very experienced in this real and knows the ins and outs of every aspect of the real estate field.