Commercial Real Estate: Asking the Right Questions

There are many “insider” commercial real estate secrets. One of the most important secrets is knowing the right questions to ask when investigating a commercial property investment. While I’m not going to cover all of the potential questions in detail, I will make you aware of some of the key issues. I’m also going to suggest some places to go for assistance.

Investing in real estate is a complex process. Unfortunately, far too many people jump into this complicated marketplace without the knowledge, training, and tools needed to be successful. It doesn’t help that we have hundreds of self-styled “gurus” selling the latest no-money-down-get-rich-in-three-minutes programs to confuse and demoralize the un-initiated when things don’t work out “as advertised.” These first-time real estate investors are often disappointed in the results they achieve and as a result, often abandon real estate investment entirely without realizing just how lucrative it can be.

Asking the right questions can greatly increase your probability of success, as can learning as much as possible about the world of commercial real estate. This is not an overnight process. One of the best place to start is to learn about your local commercial real estate market. In fact, being aware of the status of your local market can literally be half of the battle.

For example, when purchasing land it’s important to understand that the price of particular parcel varies according to a number of factors. These can include the relative abundance or scarcity of similarly sized and located parcels, the population’s growth trends for the area, and the proximity to good employers. Raw land buyers need to ask plenty of questions about such factors as local zoning laws, land use restrictions, utility easements, traffic patterns, other planned development, the permit process, and other issues. The answers to these questions can have a profound impact on the purchase price of the land and its final, developed value. Where do you go? Your city planning or building department is a great place to start, as is the local utility company. Also check in with a title company or active escrow company for contacts at the city and knowledge in their specialties.

These aforementioned factors are also important when it comes to buying existing commercial real estate, including retail, office, warehouse, and mixed use properties. Knowing the restrictions on building and use of property is essential to successful real estate investment, so investors need to learn where, how, when, and of whom to ask these questions.

One of the next best places to turn to for the answers is a commercial real estate agent, called a “broker,” familiar with the area in which you have an interest. You can even ask the broker representing a specific property. But, when asking your questions of a broker representing a specific property keep in mind that he or she is working for the seller of that property, not you. A local bank loan office or independent mortgage broker are good sources to consult for alternative opinions.

Investing in commercial real estate isn’t too different from investigating a crime scene. You need to ask tough questions and find the evidence to back up the statements. It can sometimes be a tough process, but asking the right questions will only increase your chances for a profitable transaction.