Commercial Real Estate Purchase Checklist: Five Things to Ask About Before Buying
There is a lot to think about when you are buying a commercial property. Before you close a deal, it is important to review all the details of the transaction and double-check for issues with your property to prevent unpleasant surprises later. This process is referred to as due diligence. The checks involved require specialists in many cases, but you will see that they are well worth the effort and money when you think about the potential consequences of passing them over.
TMC Financing is committed to making the 504 loan process, and this step in particular, as straightforward and manageable as possible. After you have performed due diligence, you can expand your business with confidence.
Speak Now, Or Forever Hold Your Peace
After you have paid a security deposit, you generally have a period of 30-45 days during which you can still back out of the sale and get your money back. This is your chance—your only chance—to make verifications and raise any issues that come to light.
Here are some of the most common steps in due diligence that you should add to your personal commercial real estate purchase checklist:
1) The purchase-sale agreement should be read by a lawyer. The seller’s lawyer typically drafts this document and gives it to the buyer’s lawyer for review. Both sides are protected in this way. As the buyer, it is important for your lawyer to read it. A professional is needed to see that you negotiate the best terms possible.
2) A title search should be made for the property. A title company will play a few crucial roles in your transaction. First, they will make sure the title to the property is valid; that is, when you pay your money and receive the title, it really means you own the property. They check that the seller is the actual owner of the property and there are no other claims to it. At the same time, the search will turn up any other encumbrances on the property, such as outstanding mortgages, liens, tax debt, restrictions or easements.
After completing its search, the title company will probably offer title insurance against future claims and legal fees related to the ownership of the property. The title company may also maintain your escrow account. Your broker can advise you on finding a title company.
3) The building specs should be confirmed and deferred maintenance should be identified. Does the electrical system have the capacity claimed? Is the plumbing in good condition? These questions are part of operational due diligence. Both the physical condition of the property and its conformity to local codes and ordinances should be considered. Open infractions should be discovered and settled (and any fines paid) before finalizing the sale, or else you will inherit them when you take possession of the property.
4) A financial audit should be conducted. This will start with an independent appraisal of the property. Among the other things you will want to know are property tax rates and operating costs. Continuing services such as cleaning, deliveries, and insurance coverage should also be reviewed. Many CPAs specialize in these services.
5) Zoning, licensing, and environmental issues should be addressed. To check this off your list, you will probably start with an American Land Title Association (ALTA) survey. It is important to be sure you are in compliance with zoning rules and that you are aware of any licenses required to do business in your new location. Compliance with environmental regulations is also essential and should be verified.
Your CDC Is a Valuable Resource
Due diligence is a major part of buying a property, but don’t let that long list intimidate you. Everyone—you, the seller, your lenders and the professionals you consult—is working toward the same goal: a successful transaction.
Your Certified Development Company (CDC) can be an extremely valuable resource at this time. They want you to be secure and successful in your transaction, and have the know-how to help guide proper procedure. For example, TMC Financing has helped almost 5,000 small businesses since its founding in 1981. Their experts have watched all sorts of businesses expand and have been through plenty of due diligences. Their loan closing checklist will guide you in making sure your due diligence is thorough and complete.
To help you check off some of the necessary verifications, you are able to include some of the soft costs of your 504 loan, such as title and insurance fees, legal fees, architects’ fees, appraisals, environmental reports, surveys and installation charges, in the loan itself, thus reducing out-of-pocket expenses.
TMC Financing is a high-volume, Premier Lender with the SBA, and one of the country’s top 504 lenders. Our experts will be happy to answer all your questions about the 504 loan and to guide you through the loan process from beginning to end. Contact TMC today to get started.