The Importance of Due Diligence in Commercial Property Transactions

The Importance of Due Diligence in Commercial Property Transactions

When considering that commercial real estate deals added up to $1.14 trillion in 2022, you can appreciate that the segment is wracking up big numbers.

If you plan to get into the commercial property space, however, you'll want to proceed cautiously to avoid a dreaded case of buyer's remorse.

That's where due diligence comes into the picture. Before signing on the dotted line, you must have any property you want to buy assessed. You'll discover if any issues warrant a lower offer or change of heart.

Continue reading to learn about what's involved in commercial property due diligence.

Have Commercial Real Estate Combed Over

It's one thing to look at the property's exterior and to take a look around while touring the interior with your realtor, but there needs to be a proper assessment.

You must have an expert perform an inspection before you buy property.

It's vital to look into the history of the commercial building, inspect the roofing system, check out the HVAC and electrical components, look to see if there are any liens against the real estate, and more.

If the commercial property you want to buy already has tenants, you'll want to consider payment histories to ensure you uncover any potential issues. The last thing you want is to be surprised by something you should have known about.

Give Yourself Enough Time

When conducting due diligence on commercial real estate, give yourself enough time before pulling the trigger on a deal. It's not uncommon to get 30 days to conduct due diligence after reaching a deal with the seller.

A final transaction is usually contingent on a due diligence process that doesn't uncover any problems that would jeopardize the real estate transaction.

Get Help from Your Acquisition Team

Don't try to do everything yourself during the due diligence period. You should have a team of trusted advisors that you can count on to check all the relevant boxes before you invest in real estate.

Your team should look at the condition of the roof, see if the HVAC or furnace has a valid maintenance contract in place, find out if survey markers are appropriately placed, and more.

Line Up Financing

You'll also want to ensure you have the financing needed to purchase the commercial building. So, it's vital to explore your options.

Sit down with an expert who can help you get financing at the best possible terms. An accountant will help you determine your borrowing threshold in relation to your debt-to-equity ratio.

Need Help With Commercial Property Due Diligence?

If you're going to invest in a commercial property, consider hiring a property management firm. You'll get the help you need with commercial property due diligence from a business that specializes in helping property owners.

You can count on us at PMI Los Angeles for all your property management needs. Whether you need help performing due diligence on a property, finding quality tenants, maintaining the building, or other things, we're here to help.

You can find out more by reaching out or by checking out our blog.