Buying commercial properties is what many investors ultimately aim for because it can be very lucrative. But with that potential for great reward comes some big risk. So you need to know what you’re doing, especially with respect to industrial property.
Industrial properties are those real estate spaces that are usually factories, plants, or warehouses designed for the manufacture or distribution of products. As a natural result, the buying process is complex and more than a little difficult to navigate.
That’s why we’ve created this buyer’s guide for industrial property in South Florida. So let’s get started . . .
Common Steps in Buying Industrial Real Estate
The typical and common steps involved in buying industrial property (in South Florida or anywhere else) are as follows . . .
- Securing financing – It’s usually best to start with the financing so that you’ll know your price range before beginning property search. It will save considerable time and effort.
- Searching properties and negotiating contracts – “Once you’ve found the perfect space and secured your financing, you will submit an offer. Once that offer is accepted, the listing broker will send your broker a contract which will need to be reviewed by your attorney prior to signing. After several revisions, the contract is signed.”
- Performing due diligence – After the signing of the contract, the due diligence period kicks in, typically around 30 to 60 days, during which you’ll have various inspections performed.
- Coordinating vendors – “Similar to leasing space, you’ll also want to meet with an array of vendors as you prepare to occupy your new space. They include, but aren’t limited to: interior designers, architects, furniture vendors, movers and IT specialists. Dissimilar to leasing, you’ll also need to hire a title agent to secure title for the property.”
- Closing the deal – Depending on how your inspections went, you might need to revisit the terms of the deal with the seller. Assuming all went well and your due diligence period has ended, you’ll be in the closing period (usually 30 days). Once you’ve signed the papers, the property is finally yours to occupy.”
Important Aspects of Buying Industrial Property
The steps in buying industrial property delineated above seem pretty straightforward, but, actually, that seeming simplicity can be deceptive. There are many more aspects to and complexities involved in the process.
Motivations and Goals
You will, for example, begin by carefully examining your motivations for buying and your ultimate goals for a particular property. “Whatever your motivation, it’s helpful to identify your ‘why’ before you invest. Knowing why you want to purchase commercial property can help guide you as you search for the right investment opportunity.”
As we mentioned, before searching for a property, “it’s wise to line up your financing options in advance.”
“Depending upon your lender and the type of loan you apply for, your business credit scores and reports could come into play. Some lenders may check your personal credit too. You should review your credit and make sure that the information contained in your reports is accurate. Once you verify that your credit information is accurate (you can dispute errors if you find them), take an honest look at the type of financing you might qualify for now.”
The Right Team
Because purchasing industrial property in South Florida is a complex process with many moving parts, you should partner with and surround yourself with a team of qualified experts. All experienced and successful investors understand the critical necessity of a good team.
To ensure a smooth and efficient deal, consider partnering with the following experts and professionals:
- Local agent who specializes in industrial properties
- Commercial real estate attorney
- Commercial lender/mortgage broker
- Tax Attorney
Keep in mind that before you begin searching for potential industrial properties, it’s a good idea to already have your team in place. “If you find the right help upfront, you’ll immediately know who to turn to when questions or problems arise. Assembling a team of pros might not be cheap, but it might save you from costly mistakes in the long run.”
Finding the Right Property
Once you know your ‘why,’ . . . you’ve secured financing, and you’ve put together a team of experts, it’s time for the fun part. You’re ready to start shopping for the right property in your market.
“Your commercial real estate agent can help you locate properties that meet your criteria. Pay attention to important factors, like usable square footage and location. However, don’t be distracted by a good deal if it doesn’t satisfy your reason for investing.”
Once you’ve located a potential property that meets all your criteria, it’s time to do some heavy-duty research. Your agent can be a huge help here, but you also need to do some research and due diligence yourself.
It’s nearly impossible to have too much information about an industrial property, so the many questions you should ask include these . . .
- “What has the property been used for in the past? (Do you plan to continue using it for the same purpose?)
- If you wish to use the property for a different business purpose, is it appropriately zoned to support your plan?
- Can you request a change in zoning, if needed?
- What are the property taxes?
- Is the building in need of significant repairs now, or will it need repairs soon?
- Is the property located in a desirable area?
- Does the deal make sense for your investment portfolio?”
Remember: buying industrial property is vastly different from buying residential real estate. Get something wrong here, and it could be enormously costly.
The Offer and Deal Closing
“When you find a property you want to purchase, it’s time to make an offer. Your commercial real estate agent will generally help you write up your offer to purchase, but it’s wise to have your attorney review it for good measure before you sign and submit it. Be prepared for the seller to ask for earnest money (potentially 1% of the purchase price, though sometimes more or less) when you go under contract.”
Also, make sure your offer has a due diligence period and contingency clause(s) built in in case things go wrong and/or problems are discovered, for example, zoning issues or a failed inspection.
“During your due diligence period, your lender may require an American Land Title Association survey (aka an ALTA) as a condition of closing. An ALTA survey can give you valuable information about the property, including boundary lines and the location of improvements, utility lines, and easements (if applicable).”
If everything goes off well, you’ll move forward to closing where the transaction will be finalized.
Avoid Unnecessary Risk
With the price of industrial property and the complexity of the process, you’d do well to mitigate the risk as much as possible. And one solid way to do that is by using an experienced agent who specializes.
Be sure then to choose a team with the requisite experience in all aspects of industrial properties . . .
- Investing in a new existing property
- Selling your existing property for top dollar
- Looking for land for new construction
- Researching available properties
- Leasing a facility
Why not take advantage of the local South Florida agents who are ready to help take your business to the next level?