Whether you’re a seasoned business owner or just starting out, there’s a question you’ll need to answer eventually. Should I purchase property for my business? Or, lease it? Buying commercial real estate can be a complex process – even for the pros out there. It’s not the same as buying a home, but still involves time, research and a great deal of planning.
Each scenario is different for businesses, but in the right circumstances, commercial property can be a wise investment. In today’s blog, we’ll be teaching how to jumpstart your search for commercial property management in Norman and how to find the right property fit for your growing business.
5 Commercial real estate terms you need to know.
You’ll encounter a lot of unfamiliar terms and acronyms in commercial real estate. It’s helpful to know this vocabulary when purchasing or leasing to make the process run smoother with the commercial real estate property management team you’re working with.
Here are a few important terms to keep in your back pocket:
Loan-to-Value (LTV): The ratio of how much money you’re asking of a lender versus the total value of what you want to purchase.
Debt Service Coverage Ratio (DSC): The ratio that refers to how much of the debt you’ll be able to cover each year with income.
Capitalization Rate (Cap Rate): The income of the property divided by the total value of the property.
Cash on Cash: The annual income over how much you invested. The amount invested could just be your down payment depending on the situation.
Vacancy Rate: The percentage of properties that is vacant in a time period within a given area.
Ad Valorem: The tax amount based on the assessed value of the property.
Ask yourself these initial questions before diving in.
Now that you’ve familiarized yourself with some key terminology in commercial real estate, it’s time to dig deep and ask yourself the right questions. There’s no tried and true formula for finding the perfect commercial real estate for your business.
Likewise, it may take you a bit of time and research to find the right property management company for your needs. However, there are some common guidelines to get you started.
Before you begin your search for commercial property, address your objectives and business needs with these 10 questions:
What area would be ideal?
What kind of property are you looking for?
What is the property currently being used for?
What can/can’t it be used for?
Why is the owner selling?
How is the area around the property doing?
What things will need to be repaired or replaced?
How much are you willing to put into it?
What skills do you need to hire for or contract out?
What kinds of taxes are there on the property?
Consider the following factors when deciding where to buy.
Location is typically the first issue you encounter when purchasing commercial real estate. After all, it’s where you’ll set up shop. Do you need access to the highway? What kind of foot traffic do you need to generate sustainable revenue?
Before jumpstarting your search for a property management company to work with, here are some other factors to consider regarding location:
Legal Considerations: Whether you’re working with a commercial office space or a large-scale warehouse, make sure you know your local zoning laws and building codes.
Condition: Before you purchase or rent, have a thorough inspection done of the property to uncover any damage, malfunctions or potential liabilities.
Parking: Make sure you have adequate parking and your lot adheres to government, disability and safety regulations.
Expansion: Another aspect to consider whether you have enough space to expand as your business grows. Or, if you’re not going to use all the space, can another tenant rent a portion of it?
Now that you know the basics, it’s time to jumpstart your commercial property management search.
Don’t be afraid to tour a variety of properties. It’s crucial to learn what works and doesn’t. If you’re having troubles narrowing down your options, consider the most important aspects of each commercial property: price, location, condition and allowed uses.
If you’re planning on sharing or renting out the commercial space to other businesses, you’ll need to weigh your investment by subtracting the PITI (principal, interest, tax and insurance) from the annual revenue being earned from rent.
As a business owner, the idea owning a commercial property can be exhilarating. You’ll be your own landlord and with the right amount of due diligence, can transform the property into an income-generating investment.
We hate to bring you back down to earth, but remember – buying commercial real estate property is complex. There are good chances you’ll need to hire an expert to assist you in some steps. And at times, it’s best to work with a trusted property management company to serve on your behalf when coordinating details with accountants, lawyers and mortgage brokers.
There are some things you can certainly do on your own through research. But, there are many aspects that are best left to an expert. Rieger Realty is an experienced commercial property management company with in-depth knowledge of the Norman area. To learn how we can help you purchase or lease commercial property for your business, reach out to our team today at (405) 310-2796!