Reasons For Due Diligence and Buying Commercial Property

If you have decided to get into the commercial property business, you may have been advised to practice due diligence. Though it sounds logical, you have no doubt wondered just what does due diligence actually mean. There is a lot more detail involved in due diligence than you might think.

No matter what kind of commercial property you want to buy, you will need to do your due diligence. It might be a giant mall property, or a smaller commercial business – but the process is the same. You need to know what kind of condition your property is in.

Why do due diligence?

You will want to do this not only to make a sound business investment but also to ensure that you know what your property needs so your tenants will be able to set up shop in a safe building free of any liabilities. You will also be investing in your business for a long time, so you need to be sure that there won’t be any long-term issues that end up reducing your return on investment.

Getting started

To start the process, visit the site with your commercial real estate broker and potentially even the seller. This will give you a good overview of what it is you are getting into, and what you are getting. You can develop a list of questions that you need answers to and points to follow up on.

Part of due diligence also means reading all of the documents carefully so you understand all of the terms and you know what kind of warranty regarding building condition is granted. Looking over all of the documents might take some time, but it can save a lot of frustration and expense down the road. Don’t be afraid to ask the seller for any documents from when he or she purchased the property.

This request can include any inspections or land surveys done by the current owner during the time he or she owned the property. You can also ask for a list of current tenants and how the property is being used. Is it a commercial building in an area being zoned for redevelopment? This will enable you to convert the property if you so wish. In many urban areas, abandoned warehouses have been turned into ultramodern condos. Imagine the possibilities!

Government document searches

You may also want to do a records search at the county or city records office. This search can include any inspections conducted by that government agency, any tax liens or other pending action on the property, and any environmental inspection reports.

It wouldn’t even be out of reach to pull up the original plans and specs for the building so you can see what modifications have been done over the years. The current seller might not know all of this, particularly if he or she bought it as a foreclosure or just didn’t do his or her own due diligence.

There are so many other things to look at when doing due diligence. It is a solid investment to consult a real estate attorney to assist you in the process so nothing gets missed. Due diligence can be time consuming to be sure, and potentially carry some costs, but it is very worth it in the end.