Are you planning to purchase a commercial property? Well, you made the right choice because now is the great time to do so. Investing in commercial property offers a lot of benefits, and the top reason is that this provides a great return on investment.
But, just like other investments, it is wise to know everything about this purchase before you take the plunge. So, how much money do you need to purchase commercial property? Read on to learn the different costs involved in buying a commercial property to determine if this is a practical investment for you or not.
Pre-purchase Costs
To find an ideal type of commercial property and location, you might want to work with a commercial broker. These professionals know the ins and outs of the market and they can help you find the property in your preferred location that suits your budget.
After you identify a suitable property, the next step is to determine your pre-purchase costs:
- Due diligence fees that include the following:
- Cost of property inspections to know if the property is in good condition
- Environmental screening to let the buyer check the past uses of the property and latent defects that call for attention and potential risks associated with these.
- Hiring a specialized commercial real estate lawyer to access, evaluate, and verify several legal documents.
- Probable need to hire an accountant to determine how much you can afford
- Costs related to mortgage that may include application fees as well as legal fees during the process of application
- Property appraisal to determine the property’s market value
Costs Associated with Property Ownership and Operation
Owning a commercial property is associated with three categories of costs, namely variable costs, fixed costs, and replacement reserves.
- Fixed costs
- Property taxes – Whether it depends on geographical location, property type, or as determined by the municipality, each situation is unique that results to varied property taxes.
- Commercial insurance – This covers you for any unexpected event such as floods, theft, fires, windstorms, vandalism, and others.
- Mortgage payments – Down payment on commercial mortgage ranges from 25 percent to 35 percent. You need to pay monthly payments to pay off mortgage principal on top of the interest fees.
- Operating costs
- Property management costs – You can save money and time if you hire property managers who will handle daily concerns related to property maintenance, collecting rent, preparing lease agreements, and tenant relations.
- Maintenance and repairs – You might discover that repairs are needed sooner than later during the due diligence process. This may include big ticket items such as roof replacement, cooling and heating systems, siding, plumbing, windows, and others. You also need to consider regular maintenance costs like janitorial services, landscaping, snow removals, and others.
- Replacement reserves
You can prepare this to account for future repairs of big ticket items such as roof replacement or parking lot resurfacing, just to name a few. During the process of inspection, the inspector will determine what needs replacement and when to give you a good idea of how much you have to save to afford future costs.