Buying a commercial property can be exhilarating. Whether you are experienced or a first-time buyer, due diligence is required. Don’t be afraid to ask questions and seek advice from your accountant, attorney, financial advisor, and/or Commercial Real Estate Broker.
An owner-user is a person or entity looking to buy property intended for their own business.
Most owner-users purchase properties with a loan. Below is a general overview of two of the popular lending options available to owner-users.
The SBA or Small Business Administration has several favorable lending options when it comes to buying commercial property. These loans offer long-term, fixed-rate financing up to $5 million. Typically, the easiest way to get approved is to work with your bank, which will partner with the SBA. The most significant benefit of SBA loans is that they require only 10% for a downpayment. They also allow for the option to finance improvements to an existing property. One of the requirements of these loans is that the owner occupies at least 51% of the property.
A borrower can secure a conventional loan with a lien on a property. Borrowers should be aware that conventional business loan terms vary widely depending on factors, such as credit score, business type, and lender. Typically the downpayment for these is 30%. Keep in mind this loan is considered a collateral investment property if you’re not using at least 50% of the building.
You should take the time to talk with your bank or lender to gain greater insight into the benefits of each type of loan. They can provide you with more information to help you find the best financing options for your needs.
It is essential that you evaluate what type of property you are interested in purchasing when browsing all your options.
It is important you make sure the property is properly zoned for your use as an owner-user. Buyers should consider both current and potential uses for a property. Lastly, zoning may also play a significant role when the time comes to sell the property. After all, a seller does not want their property to be restricted to only certain types of buyers.
Consider a property’s size as it relates to your businesses now and in the future. Many entities buy properties that are larger than their current needs. The space that the owner does not occupy can then be leased to a tenant, allowing the building to become an income property.
Even though you think you’ve found the perfect property, it is important to consider external factors. These factors include community development and growth. Remember, a good location now may change in five years. Although there is no surefire way to know what a location will be in the future, analyzing the environment around the potential property is essential to finding the right place.
Do you know if your property is located within a common interest community? Similar to residential HOA properties, common interest communities have restrictions and requirements associated with property ownership. These property types can restrict what you are allowed to do with the property, so you should evaluate all provisions before purchasing. By appropriately evaluating the CC&R, also known as the covenants, conditions, and restrictions, you won’t be stuck with restrictions that hold back the development of your commercial property.
Purchasing property is a time-intensive decision that requires a lot of consideration and due diligence. Get in contact with your local Commercial Real Estate Agent, Evan Meyer, to ensure you make the best choice with your property and get your questions and concerns answered.
