There is a lot of money to be made in the commercial real estate industry. A commercial property owner has the decision to rent out to another business or to rent out to a residential tenant. However, before you jump into purchasing a building for lease purposes, it is important to consider the following lease factors.
Do your research ahead of time
The time to do your property research is not after you own the property. Do your research before ever even looking at a possible commercial property. Things you need to know include the zoning, the local demand for property, and the current market value.
Researching zoning will help you target the specific demographic that the property is set up for. Local demand for property is important in evaluating your ability to lease out the commercial property. Finally, the current market value will help you come up with a competitive, yet realistic offer price for the property. It will also dictate the amount that you can charge per month to tenants.
The costs associated with leasing
One of the most important numbers that you will come up with is the profitability number. This is often calculated by figuring out the loan payment that you owe each month to the lender and then factoring in the rent price that you can realistically achieve. You will also need to factor in other costs associated with leasing. One of the most common commercial leas types is triple net leases.
Triple net lease rates are an agreement that the property owner will pay all taxes, building insurance, and maintenance. While triple net lease rates are common in residential properties, they are not as common in commercial leasing property. It is also important to note that investors in triple net lease rates must be accredited, with a net worth of at least $1 million, excluding the value of their primary residence or $200,000 of income.
The importance of zoning laws
Not following zoning laws can easily ruin a commercial business deal. Never purchase a commercial property with the intention of simply changing the zoning. Changing a buildings zone often requires city meetings and voting. If the zoning change is unsuccessful, you could be stuck with a building that you cannot build on, lease, or utilize for its intended purpose. There are also many differences between residential and commercial zoning categories. Just because a building is zoned as commercial property does not mean that you can conduct any type of business on the property.
The legal implications of commercial leasing
Many commercial property owners make the mistake of not hiring legal representation. A commercial lease is a business transaction and it is a legal one. Failing to recognize this can significantly affect the business. A single legal problem that arises out of a commercial property can result in hundreds of thousands of dollars of damages. Before signing a lease agreement, have it looked over by a commercial lawyer. It can also be helpful to consult with a commercial lawyer before changing zoning or offering a triple net leasing agreement. An attorney can help you avoid lease rates that end up costing you money.
IN 2016 alone, some 74.24 billion U.S. dollars worth of commercial buildings were put in place in the United States. Some of these properties resulted in profitable transactions, while others ended up costing the property owner a large amount of money. Avoid these mistakes by doing your research ahead of time, understanding zoning laws, and taking advantage of commercial property legal representation.