Prior to closing a sale for commercial real estate property, buyers should insure they understand exactly what they are purchasing.
According to Scott Simon, president of North Pointe Realty in Mayfield Heights, and Jeffrey Soclof, president and broker at Emmco Realty Group in Beachwood, there are a few specific things to consider before purchasing a property.
Soclof said it comes in two parts.
“There is purchasing real estate and then there are a whole bunch of costs that are related to a sale of commercial real estate,” he said. “You have a purchase price, so you’re paying for the land and building and that may or may not include personal property such as equipment or inventory. But a purchase has a bunch of other costs and expenses that need to be accommodated and planned on.”
The costs can include roof inspections, electrician work, legal fees, title work, closing costs and conveyance fees.
“If you’re borrowing money, there are also costs associated with the loan,” Soclof said. “There are brokerage fees paid typically by the seller. And depending on the complexity of the sale, there could be other licensing fees depending on what the property is used for. So, when you’re approaching a purchase, you need to evaluate and underwrite all those costs.”
As someone prepares to make an offer on a piece of real estate, Simon suggested he or she be clear on his or her own goals first.
“For example, what kind of property are you looking for and in what areas,” he said. “Is it for your own business or strictly to lease to others? How much equity do you have to invest and what is your risk tolerance? What skills do you have already and what skills do you need to bring onto your team? These are baseline issues. Know the answers before you begin.”
When looking to get the best bang for one’s buck, Soclof said that is when professionals come into play.
“It depends on the needs of each individual investor,” he said. “That is where professionals like brokers, accountants and attorneys come into play. They can help guide the purchaser in outlining the profile and finding the best options to install it. There is no one answer for everyone as it is really an individual case by case and investor by investor process.”
Simon mirrored the idea that individuals should seek out a professional when negotiating a sale or purchase.
“Commercial real estate can be a highly complex undertaking, so I suggest assembling a small team of experts who can guide and support the acquisition with you,” he said. “A good real estate lawyer, commercial broker, mortgage broker and accountant will be helpful in securing the best property on the best terms.”
But the most important thing to remember is not giving up, Simon said.
“Real estate investing involves big risks and big rewards,” he said. “Be prepared to utilize both patience and persistence.”
Soclof said the most important thing to remember in a sale is to be prepared for anything.
“My father always taught me that when investing in real estate, you need to be mindful of the worst-case scenario,” he said. “You need to go in understanding that you might be faced with that and you need to have an exit strategy to manage those circumstances. We don’t want to think about these things – selling or stepping down from your business, but you have to be prepared to handle difficult times as they do arise.”