If you’re investing in commercial property, it’s absolutely essential that you really understand what you’re purchasing before you move forward with a sale. If you rush into a deal, you can end up overlooking important aspects associated with the property, and these can cause major headaches for you down the road. But what aspects of the property should you be looking into prior to the completion of your commercial acquisition? In today’s blog, we share four essential checks you should make during the due diligence process of a commercial purchase.
Due Diligence Checklist
The due diligence period is the time when certain inspections and research are conducted so that any potential issues can be resolved before the official closing date. Here are four crucial checks you’ll want to make during this due diligence period:
- Title Checks - One of the first things you’ll want to do is connect with a title service company to research the property’s title. You want to ensure there are no title defects that could cause problems for you during your purchase. A title search will determine who is named on the title, if there are any liens associated with the property or if other parties could stake claim to the property. You want to buy a property with a clean title, so have your title service team research the property and work to resolve any potential issues they discover.
- Property Condition - You’ll also want to bring a property inspector aboard to really dive into the condition of the property and building you’ll be acquiring. It may look good from the outside, but a property inspection can reveal hidden structural issues, code violations and necessary repairs that should be made prior to the completion of a sale. These may also be required by the financial institution providing your loan, as they want to ensure they are not providing capital for an asset that has a bunch of hidden issues that could compromise your ability to pay back the loan. Some property will be sold “as is,” but these inspections still help you better understand what type of financial commitment it may take to address any issues with the property.
- Land Surveys - An environmental survey is another type of assessment that can be performed to learn more about the quality of the soil or the water associated with the property. Land and property surveys can reveal the exact boundaries of the property so that you understand where your property ends and a neighbor’s begins. This can ensure fences are placed in the right location or any current boundary disputes are resolved prior to you acquiring the property.
- Financial Performance - If you’re purchasing a commercial property that you hope will be generating income, make sure you review financial statements from the seller. Tax statements, income and expense reports and related financial statements can help you better understand the profitability of the property in the short and long term. You want the property to be a financially-savvy investment, so research on the financial performance of the property is a must if you intend to use it to generate regular income.
At Commercial Partners, we know how to assist with a number of the items on this checklist, whether that’s with our own experience or by connecting you with professionals we’ve worked with over the years who can protect your best interests throughout the course of your purchase. Let us ensure everything is done properly so that there are no unexpected surprises along the way.
For more information about any item on this checklist, or to enlist the help of a team of title service professionals ahead of your next commercial acquisition, reach out to the team at Commercial Partners today at (612) 337-2470.