So, you want to buy a commercial property for your business in New York City? Congratulations. It can be an arduous task, but one that requires so much risk and planning can also lead to great rewards.
Commercial property is property that is typically defined as any office, retail, industrial, or large scale development. Find the RIGHT property for you and your needs is the most important aspect of the deal and requires research, experience and a trusting law firm to lead you in the process.
While many of you have possibly bought residential properties, the commercial real estate market and residential real estate markets and processes are very different and this fact must be respected from the start. Buying a business property is very different and requires a different approach. If you have a real estate attorney in New York City by your side, this process becomes much easier.
Questions to ask yourself before purchasing
Before you delve into this process, it is important to understand and ask yourself why you want to make this purchase? Is it absolutely needed? Have you considered all of the alternatives?
Some common questions to ask yourself:
- What kind of property will be best for your business?
- What is your ideal location?
- Are you willing to be flexible on that location?
- For what cause will you be using the building? Will you use the building for your own business, rent it out, or use it for both?
- Are you willing to take on a partner with someone else on a property?
- How much of a budget do you have to put into the property to fix it up? Is a fixer-i[[er in your plans or not financially feasible?
- If you plan on renting out the space, are you prepared, financially and from a management standpoint, to take on the important roles and liabilities of being a landlord?
- Are you at the right stage in your life to make this kind of an investment and purchase?
Steps of Buying Commercial Property in New York
Find a Real Estate Attorney
You must find a real estate attorney. This is not the Midwest, in fact, New York City real estate is like no other place on earth. It is unique and requires experienced and dedicated professionals that know the ins and outs of the market, common mistakes that occur and red tape that can slow down the deal.
Search around, ask for referrals and find a PARTNER that is going to help you through one of the most stressful processes you’ll even encounter in life. Do your due diligence; read the reviews, contact previous clients if you can find their information and get all the information you can about this attorney and law firm. Approach it as if it were a marriage proposal, because in a sense, it will be just as engaging and life changing as one. Take it that seriously.
Building Your Team
After you have found the right attorney, you still have a team to build.
Find a qualified and reputable commercial contractor that will work with you as a partner. They should be helpful in helping you find the right property while being realistic with you and specifying the costs of needed upgrades, maintenance, to make sure the property is ready to go when the purchase goes through. There is nothing worse than buying a property and not being able to earn money off of it due to required repairs, upkeep, etc. after the purchase. Have all of those requirements finished by the time you sign the dotted line.
If you haven’t considered using a property management company, now is the time to start considering that fact, and understanding that it is absolutely a cost of doing business. While it is another expense, it is an expense that can cut your budget versus trying to do that work on your own. Again, that kind of work requires vast experience and time, things that you most likely will not have.
Finding the Best Terms of Lending
Explore ALL options. Talk to all the ands, credit unions, mortgage companies, and heck, even your friends and family they may be interested in lending you money. The better deal you can get for financing the sooner that this purchase can become profitable for you.
Find out the interest rates and finance options to figure out what is best for you and your financial goals.
Find Your Perfect Spot!
You have taken all of the important steps, have secured the financing and now you just need to find that perfect spot that will make all your planning and dreams come true.
This is one of the more enjoyable parts of the process too, going through the process of checking out and visiting potential buildings and space. This is where you come into a black canvass of sorts and start to paint your picture of what you think the building will look like under your vision. You start to come up with ideas to personalize it and differentiate your building from other around it.
New York has so many commercial real estate opportunities; the choices are nearly endless, depending on the price you want to pay. Ultimately, it comes down to finding the right building for you and your vision.
Buying Commercial Versus Residential Building
As we mentioned earlier, just because you may have purchased a residential property, does not mean you have the experience of buying commercial property.
They are two very different transactions that have their own set of rules, legalities and even modes of deciding finance options.
When it comes to commercial real estate, lending is underwritten based on the business plan of the property and how it will be used. the property’s income and expenses, or Net operating income will for the most part dictate the entire process of lending.
The property itself is valuated on the amount of income that the asset can generate, not by comparable buildings nearby.
If with your business plan you are able to decrease costs in one area, and increase revenue in another, that impacts the value of the asset which helps with the valuation and the loan.
One way to increase revenues is through leasing space to tenants; other businesses that will use the space for offices, shops, restaurants, cafes, etc.
What You Should Know When Buying a Commercial Building
While the process of buying commercial versus residential can be more daunting, it can be very rewarding and does come with many benefits.
For example, commercial real estate tends to have more fixed costs that are consistent and expected due to shared spaces, like roofs, lobbies, utilities etc. When managed properly, this can be very lucrative and attractive to an investor, knowing that they are dealing with fixed costs versus variable costs.
Of the commercial real estate market, office buildings make up the largest portion, at about 30% in the U.S. market. Those numbers are still shaking out due to the pandemic and the realization that some work can be done from home, but when it comes to New York, many experts feel that the Manhattan office building will always be around for business and thus will continue to be a good investment.
Retail space comes in second with around 25% of the market. These are all considerations that should be understood when speaking with your team on what type of building to buy.
It is so important in NYC area of the law to get a firm that is experienced in getting you the best real estate deal and transaction to get on with your investment and make money in the market now as opposed to months or years down the line.
With the right experience and network, purchasing commercial real estate in New York can be far less stressful that you can imagine and it can all start with a call to a trusted partner and attorney at Moshes Law.
