Investing in commercial real estate is one of the more effective ways to achieve the American dream. After all, you may either operate a lucrative business from the property or lease it to someone else who does. If you are new to the commercial real estate game, though, you may find it to be considerably different than residential real estate.
Buying a residential property requires taking several steps. Because commercial properties have a variety of uses, there are often additional issues you must address. Here are three ways commercial closings often differ from residential ones.
1. The parties
When buying a home, there are usually three critical parties: the buyer, the seller and the lender. With commercial real estate, the property may have many individual or corporate owners. Each of these, of course, may have independent interests and objectives. Likewise, your transaction may require a specialized real estate agent, appraiser and inspector.
While it is common for residential real estate to undergo an inspection before closing, commercial property often must comply with stricter regulations. That is, before purchasing the property, you must be certain it is safe and fit for its intended use. You may also need a land survey before closing on your commercial property.
3. Due diligence
You would likely never purchase a business without ensuring it is solvent and profitable. When it comes to commercial real estate, you must also perform extensive due diligence. Specifically, you must be sure the property is free of encumbrances, deficiencies and other vulnerabilities.
Before purchasing any piece of commercial real estate, you must ultimately have a firm grasp of your legal liabilities, financial obligations and all other potential issues. Consequently, you can expect closing on a commercial deal to take substantially longer than purchasing a residential dwelling.