5 Questions To Ask Before Purchasing Commercial Property
Many real estate investors choose to improve their financial portfolio by transitioning to commercial real estate development. A CRE developer finds properties designated for non-residential use, such as hotels, office parks, or restaurants. Many CRE developers enjoy the challenge of investing in properties that require renovation before they are leased. If you are considering commercial development, here are the primary questions you should consider before investing in the property.
What Are the Zoning Regulations?
Take the time to learn and understand the zoning regulations of the parcel. The local government regulates how each property may be used – lot size, type of business, or building height. Even if there is an existing structure on the property, you may be limited to the changes you can make based on how the property is grandfathered into the zoning ordinance. You can apply to the local planning and zoning board to request a modification to the zoning code. Every municipality has different application requirements. Consider hiring a real estate attorney to help you navigate the process.
Is There a Need?
Many CRE developers forget to evaluate the community before committing to purchase. Not every community can support the type of enterprise you are building. Establishing a retail store in an office park may not give you an extended customer reach. Likewise, building a fast-food restaurant in an area saturated with similar dining options may not be as profitable. As with any investment, each opportunity is unique, and you may find yourself breaking those rules.
Can I Obtain Clear Title?
Hire a title agency to run an ownership history on the property. There should be no outstanding liens or ownership claims on the property. A title search identifies any legal obligations on the property. A land surveyor will work with the title agency to visually document recorded or potential easements on the property.
Will the Land Support the Project?
Land surveyors and engineers support CRE developers by documenting the current layout of the property. A topographic survey will help you understand water run-off. They will also show the exterior structure and its relation to building lines. An engineer will help you design a building around these lines.
Does It Match My Business Goals?
The development should help you expand your company’s mission statement. If you expect the properties to have a positive return on investment within three years of acquisition, be confident that the property will have that return. If your business is shifting to a more philanthropic objective, modify your mission statement to include goals for this endeavor.
Developing commercial properties can be a lucrative investment. Taking the time to ask these questions helps you understand the risks relative to the potential reward.