Investing in commercial real estate can be challenging. You have to make decisions based on data, not what property you “love.” You need to understand what commercial purpose best suits that particular property, whether it be retail, residential, mixed use, or even industrial. You need to understand how to handle the property’s existing tenants and what kind of tenants you will want to seek going forward, as well as how to find and attract those future tenants. Above all, though, you need to know how to avoid the many pitfalls that lurk in the commercial real estate world.
Pitfalls Abound When it Comes to Buying Commercial Real Estate
People say that knowledge is power, but that is not quite right. The proper use of information is power. Failing to understand that can lead to most of the serious mistakes buyers frequently make when purchasing commercial real estate. That list of mistakes includes:
- Insufficient due diligence: A potential buyer needs to properly value the target property, fully understand any structural issues, be fully informed on zoning or regulatory issues, and have a full grasp of any title issues, including potential title defects and the availability of title insurance, necessary insurance policies, land-use restrictions, site surveys, building codes, and easements.
- Failure to properly understand your lender’s requirements: You might know everything there is to know about the property, but if you do not understand everything about your lender’s requirements for information, you could find yourself scrambling to satisfy your lender right before closing, or even having your lender back out of the deal.
- Failing to understand the status and terms of the leases of the tenants you will be inheriting: You cannot get rid of them, at least not right away, so you better know what you have to give them.
- Accepting that the seller actually has revealed all of the problems or issues associated with the property. Due diligence should reveal this, particularly your own property inspections, but you should make sure that you have, in writing, answers to specific questions just in case the seller proves to have been less than forthcoming.
- Failing to understand the local competitive environment. You are planning a commercial enterprise. You better be fully aware of who your competitors are in the area and what they are doing.
- Proceeding from the assumption that the closing documents will be free of errors. Once you sign those documents, the property is yours, complete with any errors those documents might include. No matter how long it takes, make sure all of the closing documents are error-free and reflect your understanding of the deal.
There is no such thing as too much information, but it matters how you use the information. Assume nothing, and double-check everything.
For Commercial Real Estate Transactions in Toronto, Talk to Beganyi Professional Corporation
Beganyi Professional Corporation is ready and able to assist with any commercial real estate transaction you are contemplating in the greater Toronto area, including Mississauga, Brampton, Oakville, Hamilton, and Milton.