How to Buy Your First Commercial Property

Buying a property to run a business on-site is the dream of most business owners – whether they aim to own an electrical contracting business, a clothing store, manufacturing business, consulting firm, hotel or anything in between.

There are other reasons why people buy commercial real estate (such as a strictly financial investment), but this article will focus on how business owners can secure their first physical space to operate and grow their business.

Why… and why now?

Buying a commercial property for your business is a big step, so before you do so, you’ll want to ensure that you’ve thought through your “why” and your “why now.” Is your business outgrowing its current space? Do you want to move to a different location? Is it a buyer’s real estate market? Are you executing on the next step of your business plan?

If you’re currently renting out a space for your business, it’s also important to pinpoint why you’re interested in buying. Maybe you’d like more stable month-to-month payments, or want to build equity, or make renovations to your heart’s content.

See your dream property in your mind’s eye

This stage involves considering the type of building you need, the location you’re interested in and the requirements you have for the space itself. As the owner, you know the vision for your business better than anyone. When you picture your ideal space, what comes to mind? Think through the hurdles you run into with your current space and what it would take to eliminate them in the new space. Since buying property is a serious commitment, make sure that you think long term – what might your business need in five years… or ten? Do you have the capital to make improvements, for issues or emergencies and are you ready for the responsibility of owning commercial property?

Is the price right?

Once you’re clear on your goals and what you’re looking for, you can shift your focus to the finances. The first step should always be to assemble a team who can help you navigate the process. This team may include a Rockland Trust relationship officer, a commercial real estate agent, an accountant, an insurance agent, a lawyer and anyone in your network with first-hand experience. Having someone in your corner who has been through the process before is a huge advantage! Above all, this team will help you evaluate your financing options and make sure you’re set up for success.

Why You Should Find a Banking Partner, Instead of Just a Lender

What you and your relationship officer need to consider

The financial puzzle pieces you’ll need to have in place before purchasing commercial real estate are similar to those needed to purchase residential, but on a larger scale. Aside from having a pulse on your budget for properties you can afford, you’ll need to be able to drum up a down payment (which can be from any source for commercial mortgages). A typical down payment for an owner-occupied property is 20%, while special-use properties (such as golf courses) tend to require a higher down payment. It’s also wise to check the state of your business’s cash flow and credit history.

During the loan process, the bank will also consider these factors, as well as other things like the quality of your collateral (if applicable); the condition, location and value of the property in question; and the business and personal funds that are available.

Timeline from start to finish

Commercial real estate purchases almost always take longer than residential real estate purchases – typically around 90 days.

Here are some of the tasks to expect on this timeline:

• Explore financing options and apply for a commercial mortgage
• Due diligence (find out all you can about the property)
• Look into the zoning laws and environment of the property
• Appraisal of the property

The process of buying property for your business can feel overwhelming, but Rockland Trust’s team of business banking officers have extensive experience in commercial property purchases and will be by your side for the long haul. We’ll take the time to learn about your unique business, walk you through the process and help you finance the property of your dreams.