Commercial Real Estate, Bigger Risk, Bigger Gain

Buying and selling commercial real estate is a bigger game than residential, with more moving parts and potentially much higher stakes—but also greater rewards. Here's a solid overview of what you need to know on both the buying and selling sides:

🏢 BUYING Commercial Real Estate: What to Know

1. Understand the Property Types

• Office buildings

• Retail (malls, strip centers)

• Industrial (warehouses, manufacturing)

• Multifamily (5+ units is considered commercial)

• Special-use (hotels, medical, etc.)

Each has different demand drivers, risks, and returns.

2. Location & Market Research

• Look at population growth, job trends, infrastructure development.

• Understand zoning laws, local ordinances, and neighborhood plans.

3. Financial Analysis is Key

• Learn to analyze NOI (Net Operating Income), Cap Rate, Cash-on-Cash Return, and IRR (Internal Rate of Return).

• Due diligence should include current leases, rent rolls, expenses, maintenance history, and vacancy rates.

4. Financing Can Be Tricky

• Commercial loans typically require:

  • 20–35% down payment

  • Shorter terms (5–10 years with balloon payments)

  • Higher interest rates

• Lenders look at both your creditworthiness and the income the property generates.

5. Due Diligence Is Critical

• Inspect the property thoroughly (roof, HVAC, foundation, etc.)

• Review legal docs: title, surveys, environmental reports, zoning compliance

• Analyze tenant leases and obligations

6. Professional Help is a Must

• Hire a commercial broker, real estate attorney, CPA, and inspector

• These deals are complex—having a good team pays off

💰 SELLING Commercial Real Estate: What to Know

1. Know Your Numbers

• Buyers will be scrutinizing income, expenses, cap rate, and lease terms

• Have your financials clean, current, and transparent

2. Improve the Asset Before Sale

• Renew or extend tenant leases

• Address deferred maintenance

• Raise rents if under-market

• This boosts your NOI, which directly boosts the value of the property

3. Marketing is Targeted

• Commercial brokers market to investors, REITs, and companies

• Good listings include full financial packages, pro formas, photos, and site plans

4. Be Ready for a Longer Sale Timeline

• Commercial deals take longer than residential—due to due diligence, financing, and negotiation phases

• It’s not unusual for deals to take 3–9 months to close

5. 1031 Exchange (Optional)

• You may be able to defer capital gains tax by reinvesting the proceeds into another "like-kind" commercial property

• Must follow specific rules and timelines

6. Negotiate Smart

• Everything’s negotiable: price, closing costs, inspection timeframes, even lease assumptions

• Understand buyer motivations: are they investors, owner-users, developers?