Investing in commercial real estate is a perfect way to generate a stable passive for years ahead. Not only this, many investors find commercial properties the best investment as it doesn’t require you to manage the property. Also, it saves you from paying for some expenses, as they will be your tenant’s responsibility.
However, purchasing commercial real estate property includes some costs that you should be prepared for in advance to ensure you don’t face any problems.
Purchase and Closing Costs
It might surprise you but purchase costs not only include the price of the property. In fact, there are certainly other expenses you’ll incur while making a purchase. For example, you may have to spend hundreds of thousands of dollars on due diligence, such as property inspection, structural assessment, and appraisal.
Furthermore, closing the deal usually involves legal fees, realtor’s commission, property transfer tax, and in some cases, sales tax. Moreover, if you’re already on the mortgage, you may have a prepayment penalty as well. Besides, you should also have an extra amount for unexpected contingencies, which can arise at the time of negotiation.
Renovations and Repairs
The renovation will give your recently purchased commercial property a fresh look, making the site more appealing to potential tenants. However, for revamping your commercial real estate, you will need to have enough money on hand.
Also, you may need to make major repairs identified during a home inspection. These may include fixing electrical wiring, plumbing connections, repairing roof or floors, improving ventilation, and much more.
However, you can hire a skilled broker that can refer you to a home inspector to give you an idea about estimated costs these repair will require.
Moving Costs and Permits
In case you’re purchasing a commercial real estate property for your own business, considering the costs for moving in is very important. It may include the cost of moving equipment, furniture, and inventory. It may also include cost of setting up communication networks, marketing your new business location, decluttering the site, and cleaning up any contamination.
You may also have to pay money to resolve permit and zoning issues, easements, and encroachments.
Besides the expenses we have mentioned above, you will also need to evaluate costs to operate the new property. These may include property taxes, financing, utilities, and insurance and maintenance for janitorial services, snow removal, property management, and landscaping.
If you’re wondering how to estimate all these costs, you may ask the landlord for past bills. Moreover, determine the rates at which operating costs have gone up in recent years; it will help you make accurate cost forecasts for the future.
The Main Takeaway
Although a list of expenses that come with commercial real estate is long, the financial benefits it provides cannot be overlooked. Furthermore, evaluating and calculating the expenses to operate such properties is not a daunting task at all.
While keeping your financial position in mind, knowing the costs and expenses associated with commercial real estate beforehand will help you make the best decision.