Finding the value of commercial real estate

If you have only purchased residential real estate in the past — such as a family home — and you’re now thinking of buying a commercial property, you need to know that there are some significant differences in the way that you determine the value of that property. Before you close, make sure you know exactly what you’re buying and why you’re paying for it.

First and foremost, you have to look at the usable square footage that you get. This directly determines how much it is worth, which may not be the case all of the time with a residential property. Square footage is still important, of course, but it is more valuable in commercial enterprises. If you’re going to rent out multiple units to business owners, for example, the size determines how many businesses the property can handle and how much you can earn.

Another thing that you’ll notice when you talk to the lender is that they’ll probably ask for a bigger down payment. You may not have needed much cash up front to buy your home, but it’s not always so easy to get a commercial loan.

When you’re looking at your projected income for the commercial property, if you’re going to lease out the space, you should remember that you may get tenants who sign long-term leases. This gives you a fair amount of stability and guaranteed income. Residential leases tend to run for just a single year and have a lot of turnover.

These are three key points to consider as you move forward. Make sure you know what legal steps to take.

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