Last Updated: January 2024
Once you’ve gained some experience buying and selling residential properties, you may want to move into commercial real estate. Buying and selling commercial properties can seem a bit daunting at first, but can be a very lucrative endeavor once executed properly. Some aspects of the process are similar to buying and selling residential properties, while others are much different. Below we explore the ins-and-outs of buying and selling commercial properties.
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How to Buy a Commercial Property?
When considering how to buy a commercial property, it’s important to fully understand the nuanced differences that are different from buying a residential property. The process involves evaluating factors such as location, property condition, zoning laws, revenue generation, due diligence in legal matters, environmental assessments, and more.
How to Sell a Commercial Property?
Understanding how to sell a commercial property is essential to closing a sale at the highest price for the seller. The process involves several phases such as preparing the property beforehand, to actively marketing, and skillfully negotiating an offer to successfully close a deal with the new buyer.
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3 Important Factors to Consider When Buying or Selling Commercial Properties
When buying or selling a piece of commercial real estate, there are several key factors for consideration to ensure a successful transaction. These factors apply to both buyers and sellers, and each includes a “Pro Tip” based on real world experience.
1. Economic and Industry Trends
Economic and industry trends play a significant role in the buying and selling of commercial real estate. Changes in interest rates, inflation, and economic growth can all impact the demand for commercial properties, rental rates, and overall market conditions. Additionally, unexpected shifts in industry trends, such as technological advances or changes in consumer behavior, can also affect the performance of specific types of commercial properties.
Economic Pro Tip: Stay informed of economic and industry trends and how they may directly impact the type of commercial property you are interested in.
2. Location, Location, Location
Yes, we mentioned location 3 times because it is that important. Location is the most critical factor when buying and selling commercial real estate. The property’s location can impact the demand for the property, the potential for rental income, and the long-term value of the investment. For instance, commercial properties located in high-traffic areas, near public transportation or in thriving business districts, may command higher rental rates and have greater potential for long-term appreciation. Similarly, properties located in areas with high demand for specific types of businesses or services may offer greater potential for rental income and profitability.
Location Pro Tip: Evaluate a property’s location carefully by considering factors such as traffic counts, parking accessibility, street visibility, nearby amenities, and how other nearby commercial properties are performing.
3. Zoning Laws and Land Use
Zoning laws and permissible land uses are important considerations when buying and selling commercial real estate. Zoning laws regulate the type of buildings allowed and business uses within specific areas. This can directly impact the potential uses of a property for better or worse. For example, zoning laws may prohibit certain types of businesses from operating in residential areas or restrict the height and size of buildings in certain zones.
Zoning Pro Tip: Zoning laws and allowable uses should always be checked before buying, selling, or renting a commercial property to understand the allowable uses by local jurisdictions.
Where to Buy or Sell a Commercial Property Online?
The search to buy and sell rental properties is now almost exclusively online. Online real estate listing websites have millions of listings with properties available to buy, sell, or lease. When selling a commercial property, you will want to make sure that your property is on a listing website for commercial properties for sale. These websites are typically free for buyers and renters to browse, but most charge the property owner a fee to list their property on the site. If you hire a real estate agent, they usually syndicate it across many platforms at no additional charge.
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Commercial Real Estate Agents
When selling a piece of commercial real estate such as an industrial building or office building, it’s important to find an agent with the experience in your type of commercial property, as well as a strong understanding of the local market. A good agent should be able to provide guidance on pricing the property, marketing it effectively, and favorably negotiating sale terms to your benefit.
Commercial Sales Companies
The agents that facilitate the commercial real estate sales are usually associated with a particular larger company called a brokerage. Real estate brokerages hold individual real estate agent’s licenses and provide their agents with access to helpful resources through shared networks. Commercial real estate brokerages can range from local small multi-person companies, to multinational brands with thousands of agents. There are also specialized commercial real estate brokerages who focus solely on specific types of commercial properties such as industrial warehouses or retail shopping center properties. Much like choosing a brand of car or associating with a favorite sports team, real estate agents carefully select their brokerage to help maximize their growth and sales potential.
Buying and Selling Commercial Real Estate FAQ
What is an “Off Market” Commercial Property For Sale?
Buying and selling commercial real estate “off market” refers to the process of buying or selling a property without listing it publicly on real estate platforms or actively marketing it to the general public. Instead, the transaction is usually handled privately between the buyer and seller or their respective representatives. This approach can provide several advantages, such as greater control over the transaction, confidentiality, and potentially more favorable terms. However, it also requires a network of connections and resources to identify and access off-market properties. Investors and brokers with strong industry relationships and experience in off-market transactions may be better equipped to navigate this type of transaction. Additionally, buyers and sellers should exercise caution and carefully evaluate the risks and benefits of off-market transactions before proceeding.
What is the Difference Between Commercial vs Residential Sales?
Buying and selling commercial properties, such as retail, industrial, and office spaces, differs significantly from residential properties, such as apartment buildings and single-family rental homes. Understanding the nuances and differences between these two sectors is essential for effective real estate transactions.
|Commercial properties include office spaces, retail locations, warehouses, and other business-oriented buildings.
|Residential properties mainly consist of houses, apartments, and other dwellings designed for living.
|Influenced by economic conditions, business trends, and investment potential.
|Driven by factors such as location, lifestyle preferences, and housing market trends.
|Buyers and sellers are typically investors, businesses, and corporations.
|Buyers and sellers are usually individuals or families, often with personal use in mind.
|Transactions are often complex, involving detailed negotiations and understanding of commercial real estate laws.
|Generally simpler, with more standardized processes and fewer legal complexities.
|Emphasizes return on investment, rental income potential, and long-term business prospects.
|Focuses on property value appreciation, personal use, and short to medium-term investment returns.
Should You Sell a Commercial Property For Sale by Owner (FSBO)?
Deciding whether or not to sell a commercial rental property as For Sale by Owner (FSBO) is a personal decision that depends on several factors. While selling a property without an agent can save on commission fees, it also requires significantly more time and effort on the part of the owner. Owners must be willing to handle the sales process themselves, including pricing the property, marketing it effectively, and negotiating with potential buyers. Additionally, owners must have a strong understanding of the local real estate market laws and be able to accurately assess the value of the property. For those with experience in real estate sales or who have successfully sold properties FSBO in the past, it may be a viable option. However, for those who are new to real estate sales or are unfamiliar with the process, working with a commercial real estate agent is usually the safer and more effective choice.