Main Content

Investing in commercial real estate

For your money, no other investment provides the stability and returns that real estate offers. But if you think residential properties are the only thing you can invest in, think again.

West Chester, PA commercial real estate is an excellent investment that can build your wealth and secure your future. Take a look at our guide to buying your first property:

Why invest in commercial real estate?

Though commercial properties might cost more than residential ones, they offer crucial benefits that make them well worth your investment:

Triple net leases

When a commercial tenant signs a contract, there is usually a triple net lease clause. Tenants will be in charge of paying real estate taxes, insurance, and most maintenance costs—not you, the landlord.

Lower maintenance requirements

A tenant has a vested interest in making sure their rented space is well maintained. After all, most businesses are public-facing and most people will judge a business by its cover. Since tenants will likely take good care of your property, it’s less vulnerable to wear and tear or depreciation.

Limited operating hours

If you’re the owner of a residential property, you’re on-call 24/7. In contrast, commercial properties typically close up for the evening, meaning you’re off the hook the moment your tenant flips the “OPEN” sign.

More objective pricing

Residential real estate values are influenced by a myriad of factors, which makes pinning down a price challenging. Things aren’t as complicated with commercial real estate. Simply ask what the current owner paid for the property versus the sales it generates per square foot.

How do you buy commercial real estate?

For the most part of the buying process, it’s just like buying a home—except that the property will be much bigger and pricier. But there are key differences, too, as seen in the step-by-step guide below:

Pick your niche

As much as possible, choose a business that overlaps with your expertise. If you have a retail background, a retail property might be a good fit. Otherwise, are you willing to learn the ins and outs of the business you want to get into?

Generally speaking, there are five kinds of commercial real estate to choose from:

  • Multi-family properties (e.g. apartment buildings or condominiums)
  • Offices
  • Industrial or manufacturing
  • Retail
  • Hospitality

Choose your location

The most important factor to consider is location. A property in a well-established area will cost more, but you’ll likely attract customers or tenants in no time. Conversely, a property in a developing area will cost less, but it will take longer to cultivate a customer base.

You should also list down the features you want. If you’re buying an office, how big should the floor space be? And how many conference rooms should it have?

Secure financing

If you’re buying as an individual investor, make sure that you have a healthy credit score and a sizable down payment.

However, most commercial real estate are purchased by corporate structures or real estate investment companies. To qualify for financing, your firm must make at least a 20% to 30% down payment and have a good debt service coverage ratio.

Build a team of experts

Buying commercial real estate is a complex legal process, so you will need a team of professionals who can help you navigate it. Your team should include a:

  • Real estate agent
  • Lawyer
  • Accountant
  • Mortgage lender

View and select properties

Your agent should provide you with a shortlist of viable properties. Review these and select the most promising ones. Request a viewing to see if a property fits your needs. Once you’ve made up your mind, work with your agent to come up with a competitive offer.

Enter into escrow

The escrow period is when both you and the seller conduct your due diligence. It can last anywhere from 30 to 180 days depending on the seller’s agreement. This is the time to commission a professional inspection of the property. If any issues turn up, you can request for repairs before the property is turned over to you.

Closing

If everything goes according to plan, you just have to sign the contract to make the property officially yours. Congratulations on buying your first commercial real estate!

With its colorful community, ease of access, and a thriving economy, the charming borough of West Chester is the ideal place to start a business.

Our team at RE/MAX Direct can help you find the best commercial property for sale or lease in Chester, PA no matter what your business goals may be. To get started, call us at 610.430.8100 or email us at remaxdirectwc(at)gmail(dotted)com.