What Are Distressed Properties?

If you’ve ever bought or sold your home, you’re probably well aware of the tedious and long process involved. Not only do you have to gather all the documentation, but due diligence must also be performed on the property, from making sure the property has a clean title to making sure it’s valued fairly and needs no major repairs.

Preparing to buy a home is a lengthy process. If you buy at the right time, though, the process can create significant wealth.

This same idea is true for business owners and entrepreneurs. Many savvy businesses seek to invest in commercial real estate to grow their asset portfolios and establish monthly rents, dues, and fees. But, conducting your commercial real estate due diligence checklist can be daunting for newer investors until they learn the process. Here’s what you need to know about it.

What Does “Commercial Property Acquisition” Mean?

When a person engages in the buying and selling of commercial real estate, this process can be even more tedious. The process of purchasing a commercial space is called commercial real estate acquisition. This is where an individual or business purchases a property with the intent of operating it or reselling/renting to others.

Sometimes renovations and improvements are made to the space, but often these improvements are realized by the lessee, who builds the space to suit. Fortunately, commercial real estate does not often require a heavy presence because your business is leasing the space to other businesses who take on the rest of the work.

Why Purchase Commercial Real Estate?

Investors are always looking for avenues to build their wealth in passive ways. For an individual who is running their own small business and does not have an interest in having tenants, it can still be to your advantage to purchase commercial real estate.

The average business lease agreement lasts anywhere from 5 to 10 years. As a business owner, you know the importance of consistency. One of the most important ways to be consistent is through location. You want your clients and patrons to be able to find you.

Another aspect, beyond consistent location, is a consistent lease. With inflation on the rise, leases are going up in price. If you have invested in your own commercial space, you have a set monthly and reliable payment that will never increase.

Another benefit to purchasing your own commercial space is you have increased the value of your business. If you were ever interested in selling your business, the value of all your assets would be included in the evaluation, including your property.

The biggest benefit of buying a distressed property is the discounted price. However, there are some risks of purchasing distressed properties.

Here’s what you need to know

Your Step-by-Step Guide to Commercial Property Acquisition

Before investing in any property, create a due diligence checklist. This is essential in order to protect your investment, your business, and yourself. A due diligence acquisitions checklist has four main areas that must be investigated including financial, legal, business, operations, and HR.

The following list includes 13 significant considerations that an investor takes on during the acquisition of their real estate investment.

The most recent title on the property
The latest ALTA survey and topographical map
A description of the property
Accounting statements (on rents, incomes, securities, maintenance, taxes)
Service contracts and accounting and fees
Zoning
Declaration of any restrictions on the property (easements, convents, reservations)
Environmental report
Any reports on the property (mold, soil tests, foundation assessment, termite presence, radon studies)
Accounting statements (on rents, incomes, securities, maintenance, taxes)
Government notices, assessments, or code violations
Current insurance policy
Pending legal actions against the property
Any other paperwork that may be significant to the property and its functions or location

Navigate the World of Commercial Property Acquisition With Hokanson Companies

The world of commercial real estate acquisitions can be exciting, yet overwhelming even for a seasoned investor. The process can be easier when you combine forces with a professional and experienced company like Hokanson Companies. Their success is your success as they help guide you in obtaining the right investments for your business portfolio.

We aid you in finding the right tenants, assist in making smart improvements, and help you in achieving your greatest chance for success as you pursue the world of commercial real estate investmenting.