What to Look for When Buying Commercial Land for Your Business
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buying commercial land
What to Look for When Buying Commercial Land for Your Business
Buying commercial land is a major undertaking – especially when it’s for an owner-occupied property. Business owners must be informed and diligent throughout the process.
A close and careful approach is essential for making a smart real estate acquisition without winding up in financial or legal difficulties due to inadvertent construction, title, environmental, or other issues.
This is a guide on what to look for when buying commercial land for your business. It provides an overview of stages and concerns to look out for, from pre-purchase considerations to deal finalization.
It covers:
Pre-Purchase Considerations
What to Look for
Number Crunching
Analyzing Properties
Choosing Developed vs Undeveloped Land
Location
Zoning
Finding a Property
Due Diligence and Research
Negotiations
Finalizing the Deal
Resources
What You Need to Consider Before Searching for Commercial Property
Before selecting commercial real estate, take some time to become an informed, educated, and intentional buyer.
First, have a clear idea of your objective. What kind and type of property do you need? Is it an industrial building, a food preparation place, a medical clinic, a daycare, an office, etc.? Will there be retail sales with several customers going in and out or customers by appointment only? Will many people need to arrive, park, or leave at one time, like in a childcare facility or church? Do you need special equipment or a certain amount of water pressure? Understand your current needs and future goals.
Determine your budget and financing options. Have an accountant evaluate your cash flow, projections, and annual income history to see what you can afford, along with potential financing options.
But look beyond that. Buying land for a small business also represents a financial investment and asset acquisition. Do more than calculate the costs of owning and maintaining commercial real estate. Learn how commercial real estate is financed and what moves are possible. In addition, consult with corporate real estate legal, tax, financial, and business professionals to understand how to best use this to your advantage.
Then consider what you’re willing to take on. Buying commercial land has definite advantages over purchasing a developed property. However, it entails much more work, personal involvement, and risk.
Are you prepared to develop a vacant land property from the ground up? Would you rather restore and expand on an existing structure? Or is it worth finding something you can move right into?
Look over all the development, construction, or renovation work you may have to take on. Ensure that you have the knowledge, experience, grit, and time it takes to get things done.
Finally, assess a potential construction timeline along with your personal and business schedule. Determine how soon you need to be in a new property. Evaluate how long it may take to find, purchase, develop or renovate, and move into a new place. Check your personal and business schedule to see if this is feasible. Do you have enough time to devote to it? Does the business schedule clash with it? Are any significant events in conflict with it? Is there a firm deadline for completing all the work?
Have a clear idea of what you’re looking for, what you’re willing to take on, and the best strategies.
Consider Property Ownership a Long-Term Investment
Approach buying commercial land with a long-term mindset. Buying commercial land involves significant financial expenditures throughout the purchase. It exposes you to new risks and legal liabilities. In addition, commercial real estate and vacant land often take longer to sell than residential properties.
When buying commercial land for your business, look for a property that’s fit for long-term use, while being a smart investment and asset.
Are you committed to having your business in this location?
Can you sustain the costs over time?
What contingency plans do you have in place, if the property becomes unaffordable or unsuitable for use?
How can you generate income from the property?
Committing to a property is easy. Unloading it on demand is not.
What to Look for When Buying Land for Commercial Use
Here’s what to look for when buying commercial land for your business.
First, evaluate the location and property placement for physical and legal accessibility issues. Look into the potential entrances and exits, along with road and highway access. Look into who else has rights-of-way through the property.
Not all properties can be developed in the same way. So check the land’s topography and composition to ensure the property is fit for your intended purposes. This includes land sloping, water sources, floodplains, underground pipes or storage tanks, soil quality, and utility line locations.
Verify that utility services can be brought onto the property. Check with multiple providers, especially for phone and internet services, and ensure that the property can get the level of service needed. Look into phone, internet, electricity, water, and gas services. And see if the property can get sewer access or will need a septic system.
You also need to screen it for local ordinances and regulations determining or restricting how the property can be used, such as zoning, parking regulations, waste management, noise levels, and deed restrictions.
Run the Numbers, What Can You Afford?
Have a clear understanding of the full costs of purchasing and developing a commercial property. This entails far more than the costs of a loan or down payment.
Survey this list of potential expenditures. Find the ones that apply to you and keep them in mind when selecting commercial real estate.
Loan Down Payment
Land loans usually require a higher down payment than mortgages. Many lenders ask for 30% to 50% of the loan.
Property Purchasing Costs
Budget in the costs of conducting due diligence during the purchase. This includes:
Title search and Title Insurance: $2,500 to $15,000
Appraisal: $1,000 to $10,000
Environmental Report(s): $2,000 to over $6,000 for Phase II and $10,000+ for Phase II
Inspections: $0.03 to $0.10 per square foot
Closing Costs
Realtor commission, sales tax, land transfer tax, legal fees, mortgage prepayment penalty
Processing and/or Underwriting Fees: $500 to $2,500
Credit Checks: $100 to $1,000
Mortgage Broker’s Fees: 0% to 2%
Legal Costs: ~ $15,000+
Mortgage Registration or Recording: check the local area.
Land Development and Construction Costs
Labor
Materials
Equipment
Environmental Remediation
Security
Permits
Project management fees
Architecture and engineering costs
Legal fees
Consultant fees
Inspections
Environmental analysis
Insurance
At least 5% for contingencies
Contingencies
You never know what will happen. Budget 10% to 15% of the purchase price for contingencies.
Build-Out and Fit-Out Costs
Most commercial real estate will need to be built and fitted-out in order to be suitable for your business. This refers to alterations, renovations, improvements, and installations done to make the space fit for use.
Fitting-out work typically involves installing flooring, ceilings, light fixtures, displays, furnishings, and equipment. In other properties, you may need to change the interior layouts and add or combine rooms.
Estimate the costs of this while evaluating options.
Repair and Renovation Costs
A building condition report or commercial inspection should include a detailed list of what repairs and upgrades are needed, along with cost estimates and capital expenditure plans.
Repairing or replacing structural, mechanical, electrical, and HVAC systems can be expensive. Always have an informed estimate of what immediate and upcoming repair costs will be when selecting commercial real estate.
Many sellers will have building condition reports available for you to see.
Moving Costs
Calculate the costs of moving, cleaning, and restoring your current location (if presently renting).
This includes:
Moving furniture and equipment
Setting up utilities (phones and internet service)
Landscaping
Trash disposal, site cleanup, hazardous or contamination removal
Repairing, restoring, and cleaning the current location
Signage installations
Early termination costs for current services or rentals
Moving insurance costs
Permits
Account for the costs of acquiring new permits or licenses, as well as resolving existing permitting or title issues. These issues should have been found during a title search.
Permitting Issues
Code violation notices
Encroachments
Easements
Consult with a real estate attorney to resolve these.
Downtime and Relaunch
Factor in your downtime costs, along with marketing and advertising to relaunch. The business will have to pause operations during the move and may take some time to get running again.
Plus, you will need to inform current clients of the move and may need to reestablish operations.
Estimated downtime schedule and lost income
PR and marketing to inform the client base of the move
PR and marketing campaigns to relaunch
Staff hours needed to assist in the move
Mailing costs, website updates, new business cards, product packaging,
Have these funds in reserve.
Operating Costs
Precisely estimate the ongoing operational expenses. This includes:
Utilities
Cleaning or janitorial services
Maintenance and repairs
Property management
Landscaping
Seasonal or periodic landscaping (tree repairs)
Snow removal and de-icing (parking lots, sidewalks, etc.)
See prior bills, service contracts, and pro forma financial statements. For utility bills, try and see at least 2 to 3 years of prior bills. For services and maintenance work, examine the current expenses closely and shop around for better deals.
Taxes and Insurance Costs
See the most recent title insurance policy or insurance commitment. Title policies and commitments show what coverage insurers are currently willing to extend, and at what costs.
Loan Costs via Lender Term Sheets
Find the mortgage or loan repayment schedule and costs.
Run the Numbers
Tally up the upfront and ongoing costs. Your upfront costs include the down payment, purchasing, closing, contingencies, construction, fitting-out, moving, permits, business downtime, and relaunch. Ongoing costs are all the operating costs and loan repayment.
Ensure that you have enough for the upfront payments and can sustain the ongoing costs. Your banker, accountant, and other financial advisors should have already informed you of what you can afford.
Is this property within budget? Is the loan-to-value ratio under 80%? Based on your cash flow projections and annual income, will you have a debt service coverage ratio of 1.20x or more?
How Do You Analyze Commercial Property?
Buying commercial land for business purposes requires you to analyze its fair market value, business utility, and investment. and business value. Is this a good strategic acquisition? How appropriate is it for your business needs? Is this a good investment?
Analyze the neighborhood, real estate market, economy, and property.
Neighborhood Assessment:
Upkeep and visual appearance
Amenities
Traffic and pedestrian congestion levels
Proximity to major transportation corridors
Nearby public transit access points
Walkability
Urban planning
Development activities
Competition
Parking: street or parking lots
School ratings
Building and Lot:
Proximity to main roads or footpaths
Property management
The average vacancy rate for similar properties
Similar new construction or developments
How old is it? When were the HVAC and major systems put in?
What’s the zoning like? Can a variety of other businesses operate in it? (Potential for resale or renting.)
General building condition, upkeep, and wear and tear
Property history, frequency of owner or lease-holder turnover
Property sale and debt history
How desirable is it?
How much general utility does the property facilitate?
Is this kind of property scarce or is there competition?
What’s the cost per square footage?
What’s the cost approach valuation – or the price of building the property from the ground up, along with the current land value? (Land + construction and labor costs + material + furnishings etc.)
What are the sale prices of similar properties in the same market or submarket?
Business Utility:
How many parking spaces are available?
Is it laid out and configured well for your purposes?
Will it need new equipment or plumbing put in?
Square footage – enough for now and room to grow
How far setback is it from the road? Does your business cater to walk-ins or drivers only?
Does it provide enough water and power for your operations?
Local Real Estate Market and Economy:
Tenant and buyer profiles
Vacancy rate
Rental rate growth
Comparable property prices
Local demographics
Major economic drivers
Local job creators
Dominant local industry or industries
Population growth rate
Local net migration rate – positive or negative
Demographic cohort responsible for local growth
Average income and spending power
Median household income
Historic neighborhood prices
Developed vs. Undeveloped Land
One consideration to make is whether or not you want to purchase developed or undeveloped land. Either one can seem attractive to different investment concerns and preferences. Undeveloped land is less expensive while offering a higher return potential and can be customized to exact specifications. Developed property is much easier to take on but isn’t as customizable and is likely to still require some construction.
Here are a few pros and cons of each option.
Advantages of Buying Undeveloped Commercial Land
Increased opportunities for improvement
Higher potential ROI
Customizable build
Less buyer competition (most go for built structures)
Less expensive and more cost-effective than buying developed land
Can get or afford a much larger lot size
Can start with a smaller building, then expand later on
Can buy now and hold onto it until ready to develop (a great option if you find a good deal or ideal lot)
Disadvantages of Buying Undeveloped Commercial Land
Financing can be difficult
Requires a larger down payment – sometimes up to 50% of the loan
Permitting costs and requirements
May require obtaining easements and rights of way
Not immediately usable
Requires more environmental and land surveying
Will be harder to unload if you need to sell before fully developed
Advantages of Buying Developed Commercial Land
Can readily obtain financing and mortgages through traditional or alternative sources
Faster to make use of
Can calculate precise expense costs
Disadvantages of Buying Developed Commercial Land
May be hard to find the perfect building or facility
Will have to sacrifice design, layout, or other features
Still requires construction work
May be more likely to have title issues
More buyer competition
Importance of Location
When it comes to residential real estate, location mainly matters for resale and rental purposes. However, if you have an owner-occupied commercial property, its location must be desirable and accessible to your customers at all times.
Select commercial real estate in a location that’s easy for new customers to discover and current ones to access. Keep foot traffic and ease of transportation in mind.
Along with that, ensure that suppliers and employees can access it as well. Do trucks or service vans need to come in? Make sure the roads, entrances, and parking lot are conducive to navigation. Do you need to be located in a more industrial area? Ensure that all employees and visitors have sufficient public transit access, that’s safe to travel on at all hours.
Commercial Land Investors Must Know the Zoning and Usage Laws
Land area is divided into zones that determine which activities properties can be used for. Zones also set physical, dimensional, and property management-related guidelines.
The most common zones are residential, commercial, industrial, recreational, agricultural, and mixed.
Residential: single or multi-family residential buildings.
Commercial: offices, stores, restaurants, hotels, and other businesses interacting with customers
Industrial: manufacturing, industrial plants, etc.
Recreational: sports fields, parks, tennis courts, and other community recreational activities
Agricultural: farming and agriculture.
Combined or Mixed Use: one area with multiple zoning designations, such as commercial-residential zones for live-work neighborhoods.
For more enhanced urban planning purposes, commercial zones may be further divided into subzones in order to narrow down the activities permitted within each area. For example, many cities designate separate areas for shopping malls, warehouses, or nightclubs.
Zoning areas are commonly labeled with a letter that designates the primary code, then numbers to show subzones. For example, commercial zoning is often classified as C1, C2, C3, etc.
C1 is often used for areas abutting or within residential neighborhoods and is designated for commercial establishments that people may need to visit on a frequent basis or businesses which cater to personal needs, such as convenience stores, day cares, pharmacies, nail salons, dry cleaners, etc.
C2 zoning districts may be reserved for local or semi-local businesses that residences will visit fairly regularly, such as professional offices, personal services, medical clinics, vets, daycares, etc.
Zoning ordinances also regulate things like lot coverage, building height, square footage, number of building exits, fire escapes, parking requirements and space allowances, signage, noise levels, waste management, landscaping, and more.
Not familiar with some of those terms? Here’s some dimension-related zoning jargon.
Lot coverage: the square footage of the lot compared to the building’s footprint
Floor area ratio (FAR): square footage of land compared to the building’s square footage
Parking ratio: number of parking spaces compared to the gross leasable area. (Ratio is often represented as the number of spaces per 1,000 square feet and municipalities will set minimum allowances for different commercial properties.)
Each municipality has its own zoning ordinances. Check your local ones carefully.
Getting Around Zoning Laws
Yes, zoning laws are firm and restrictive. But there are crafty ways to get around them – at least, for those in the know.
Here are a few strategies that experienced developers rely on.
Rezoning
Accessory and Ancillary Use Codes
Zoning Variances
Conditional Use Permits
Rezoning
Rezoning refers to changing the zoning laws. You can petition the city or town to permanently change the land usage laws.
However, this is slow and time-consuming. And the local government is only likely to do so if it feels the need to revitalize or improve the area in some way.
Don’t count on being able to rezone a plot of land. This isn’t the most straightforward or likely workaround scenario, but it’s still a potential option that’s worth looking into.
Accessory and Ancillary Use Codes
Accessory codes allow a property to have certain accessory structures and elements, such as storage areas, fuel tanks, solar power structures, etc.
Ancillary use codes permit certain uses of a property that don’t conform to the zoning regulations but are deemed necessary or beneficial to the local community.
Zoning Variances
A zoning variance is a zoning law exception that permits minor changes to the bylaw. Variances are used in instances when ordinances inhibit a property from its best use or cause undue hardships or difficulty for the property owner. https://leverage.com/financing/commercial-zoning/
There are two kinds of zoning variances – use and dimensional or area.
Use variances are exceptions to what the land can be used for, such as placing a home medical device store in a near-residential zone that allows pharmacies but not other retail stores.
Dimensional or area variances are exceptions to ordinances on physical requirements or property dimensions, such as increasing the parking spaces or adding another story.
Zoning variances may be granted to land or business owners who present valid reasons for getting them. Variances typically must be minor, appropriate to the area, and in conformance with the zone’s intent. Business owners usually have to prove that variance won’t hamper the use or lower the value of surrounding properties.
Conditional Use Permits
A conditional use permit allows a property to violate zoning ordinances in order to benefit the local area. Conditional use permits are considered easier to get than zoning variances. Business owners who can demonstrate that this permit will benefit the general community without altering the neighborhood’s character or negatively impacting the local area or property values are likely to get one.
Getting a Zoning Variance or Conditional Use Permit
Zoning variances and permits are administrative permissions that are granted on a case-by-case basis. They are only valid for the specific business it’s granted to and aren’t transferrable to a new property or business owner.
Variances and permits can be obtained through a similar process. First, send in an application to the city, county, or municipality’s website or zoning office. Municipalities hold regular zoning meetings. You will have to attend when scheduled and make your case. It’s best to have an experienced real estate attorney assist with this.
Use codes, variances, and use permits are the best ways to get around zoning restrictions. If you see a promising piece of land in an area with a zoning restriction, ask your real estate attorney how likely you would be to get around that. But be careful. There’s no guarantee that a local zoning council will act favorably toward you.
Identify a Property
Land isn’t scarce. That can make selecting commercial real estate exciting but challenging. Brokers are always a great asset. But you might want to start checking out the local real estate market on your own.
If so, here are 13 online commercial real estate listing sites.
Land.com (formerly Lands of America)
Do Your Due Diligence
The law expects you to be responsible and informed when buying commercial land. This means acting to verify the condition and finances of any potential property purchase – or conducting your due diligence.
Due diligence involves researching, investigating, and confirming the property’s physical, legal, and financial conditions, along with confirming seller representations of the property.
Here is a 22-point checklist.
1. Evaluate the neighborhood. Part of your due diligence includes selecting commercial real estate in an appropriate location. Conduct due diligence into the local area’s economics, crime, and other factors. This is one of the first things to do.
2. Do a title search. A title search hunts through public records to find proof of current ownership, title transfer history, and other legal documents attached to the property. It can find liens, claims, and other disputes.
3. Purchase title insurance. If you decide to go through with a purchase, obtain owner’s title insurance to protect you against unforeseen title issues. Most titles have defects and problems associated with them, and these aren’t always picked up in a search. Title insurance will protect you.
4. Review the property’s legal description. A property’s legal description is a written description delineating a property’s location and boundaries. It’s found in the title itself along with the instrument of conveyance. Ensure this matches the description in the real estate listing.
5. Zoning Compliance Certificate. A zoning compliance certificate or building and planning compliance certificate is proof that the property conforms with local zoning ordinances and building codes. Find out what kinds of certificates your city, municipality, or county issues, then ask to see these.
6. Review ALTA/NSPS surveys and topographical studies. It’s a good idea to review a recent land title survey and a topographical study of a potential purchase. Land title survey standards are set by the American Land Title Association (ALTA) and the National Society of Professional Surveyors (NSPS). These surveys offer complex and detailed physical and legal information on a piece of land, showing boundaries, easements, rights of way, access points, water features, and other elements. Topographical studies or topo maps show the ground characteristics of a piece of land.
Consider surveys essential when selecting commercial real estate options. And always review a topo map when buying commercial land for development.
7. Building blueprints, construction plans, and as-built drawings. Ask the seller if there are building blueprints, construction plans, or as-built drawings available.
8. See the most recent title insurance policy or commitment. A title insurance policy or commitment shows the most recent insurance made available. It includes information the insuring company has found regarding the property and its insurability. This can be highly revealing, showing potential issues and insight into potential coverage.
9. Declaration of covenants, conditions, restrictions, reservations, and easements. Covenants, conditions, restrictions, easements, and reservations are limits, rules, or regulations placed on a property by its developer, community, or government. If this applies, ask for a copy of the declaration.
10. See utility, tax, and maintenance bills. Don’t guess how much it costs to operate or maintain the building. Due diligence requires getting precise figures.
11. Analyze Costs Loan and Operational costs. Run the numbers. Use copies of the seller’s bills and other financial statements to determine how much it will cost to operate the property. Add this to the mortgage or loan repayment costs.
12. Review the seller’s permits, warranties, occupancy certificates, partial occupancy certificates, government notices, special assessments, code violations, guarantees, etc. Obtain copies of any and all permits, warranties, occupancy certificates, code compliance notifications or violations, and other government-issued documentation. Ask the seller to turn over everything in their possession or control.
13. Existing insurance policies and certificates, and any existing claims. Ask the seller for a copy of the insurance policies, certificates, and claims on the property.
14. Seller litigation search. Search various jurisdictions and court levels for any legal action or proceedings involving the seller or property address. Liens and judgments can be placed against the property. When selecting commercial real estate, always make sure it’s clear from any legal disputes.
15. Commercial owner’s association covenants and restrictions. Much like homeowners associations, commercial owners’ associations come with rules, regulations, and standards. If you are buying commercial land or property in a community, ensure you review the covenants and restrictions first.
16. Review the building or property condition report. Ask the seller to see a copy of the building condition assessment. If this isn’t available, ask for them to have one done.
17. Get an appraisal. Appraisals are necessary to obtain financing. If you’re serious about a property, get an appraisal done and use it to shop around for the best lender.
18. Get a commercial property inspection. Hire a professional commercial property inspector to assess the building, facility, or land.
19. Get an environmental site assessment. Order a Phase I environmental report to look for soil, water, or airborne environmental contaminants and the risk of contamination.
20. Get insurance quotes. Use the results of your due diligence to get multiple insurance quotes. See how much you will be charged and understand what the best deal is.
21. Are there enough parking spaces for your current needs? Will you be able to expand without a problem? Ensure you have enough for now and room to grow. You don’t want to inhibit business activities or be forced to relocate sooner than necessary simply due to insufficient parking.
22. Accessibility and ADA Compliance. Can someone with disabilities access or navigate the property? It’s your responsibility to make sure they can. Always keep ADA compliance in mind when selecting commercial real estate.
Commercial Property Inspection Guide
A commercial property inspection evaluates a site’s condition, spots for issues, and finds needed repairs. These inspections are standardized by the American Society for Testing and Materials (ASTM) E2018-15. Inspectors will check the building, site, and environmental conditions.
The building:
Roofing
Structural frame and building envelope integrity
Mechanical systems
Electrical
Plumbing
Heating, Ventilation, and Cooling (HVAC)
Interior elements
The site:
Paving
Landscaping
Drainage
Grading
Environmental assessments:
Lead-based paint
Radon emissions
Indoor air quality
Infrared thermography
Asbestos
Phase 1 assessments
Professional inspectors can also review documentation and provide probable costs.
The Condition of the Property
When selecting commercial real estate, ensure you know exactly what state the property, building, or facility is in. You can hire your own inspection or look at a detailed analysis through a building condition assessment.
A building or property condition assessment – sometimes referred to as a building or property condition report – is a detailed inspection and analysis of commercial real estate. It inspects the current condition and determines future repair needs and costs. presents an estimate of future repair costs.
This inspection covers the building’s site, envelope, structure, interior elements, roof, mechanical systems, plumbing, electrics, vertical transport equipment, safety, fire safety, air quality, accessibility, ADA compliance, code compliance, mold, water and moisture intrusion, energy loss, and air leakage.
A building condition assessment is considered diagnostic as it identifies current and expected problems, along with recommended solutions and estimated costs.
The final report should include:
A list of physical deficiencies
Recommended short and long-term repairs
Recommended site improvements
Estimated upcoming capital expenditures with multi-year cost schedules
Recommended replacement reserves
This report should be done by a commercial building inspector. This is a standardized inspection with guidelines set by ASTM E2018 and the International Standards of Practice for Inspecting Commercial Properties.
The final report is considered incredibly valuable to lenders and financers. See this report before making an offer or purchasing decision. The seller should have this available for prospective buyers to review.
Will grading be required?
Grading refers to the sloping or level of the ground on a property. Land grading also refers to the work done to lower, raise, or level out the grounds.
Properties must be graded correctly. Grading affects the property’s water flow, drainage, soil erosion, landscaping, and potential land use. Poor grading makes properties susceptible to flooding issues and a property with steep slopes is hard to build, walk, and park on.
As part of due diligence, have the site inspector assess the property for grading issues. And get their professional opinion on whether or not future developments or building expansions will require grading.
Land grading can be incredibly expensive, often costing between $5.00 to $10.00 per square foot.
Will handicapped accessibility in and out of the property be easy?
Private businesses must be accessible to individuals with disabilities. Wayfinding, parking, entrances, bathrooms, and other building features must be inclusive.
Landlords and property owners are both held responsible for ensuring that buildings and businesses are accessible. This is required by the Americans with Disabilities Act or the ADA. It is considered discrimination for disabled individuals to be unable to use public accommodations that other people can.
Make sure that your commercial property inspector is evaluating for ADA issues. There isn’t a standard inspection or certification process. However, a qualified inspector will know to look for ADA accessibility areas, such as parking lots, sidewalks, entrances, rooms, counters, corridors, restrooms, handles, switches, and other features.
Conduct the Research
There are many things to keep in mind while buying land for a small business. But a few of them can impact your capability to see immediate and long-term use and property value.
Those are parking spaces, room to grow, and the neighbors.
Is there enough room for parking?
Will customers, employees, suppliers, and service professionals have enough room to park? If there isn’t enough space on-site, are there publicly available alternatives within a close distance?
Parking availability can either contribute to or impair your business growth.
Make sure you have enough for now, and the future.
Is it large enough for future expansion?
Buying land for a small business is a complex, significant, and long-term investment. Don’t select a property that’s just right for your current needs. Get enough to grow into, and then some.
Many owners underestimate their growth capabilities. Don’t make that mistake. You don’t want to spend money, time, and energy on purchasing, developing, and renovating real estate, only to have to find a bigger property within a few years.
Purchase more land than you need now. If you don’t need it later on, you can still develop it for rental purposes or find other ways to generate income from it.
Are the neighboring properties in good condition?
Bad neighbors can drag down your property value, turn off customers, and make things difficult for you and any employees. Always screen for potential neighbor issues when selecting commercial real estate.
Look over the neighboring properties while visiting or inspecting the one you’re interested in. How are the upkeep and maintenance? If it’s a public business that’s open to walk-in customers, you might want to check out areas that are available to you.
Ask the seller if they’ve had any issues. But don’t rely on their word alone. Investigate the property addresses and owners to find cases of litigation, coding violations, poor reviews, or complaints.
Think hard about buying commercial land beside or around dirty, anti-social, or difficult owners. Land grading and building renovations are far easier to handle than a problem neighbor.
Begin Negotiations
A commercial land negotiation is complicated. Retain qualified and experienced real estate professionals to get you through it.
Negotiation should cover the following points.
Purchase Price
Determine what prices you are willing to pay long before getting into negotiation. Look at your budget, property valuations, and available financing.
What are you most comfortable with? What are you willing to go up to?
Remember to negotiate for more than price alone. So, think of terms, discoveries, or concessions that could motivate you to raise or lower the price.
Due Diligence
The due diligence period is determined during negotiation. You and the seller need to come to an agreement on its timeframe, accepted activities, documentation needs, and other requirements.
Warranties and Representations
Commercial real estate representations and warranties refer to the facts, statements, declarations, and other informative assertions put forth by the seller about the property.
Your negotiation must clearly define the representations you’re working with, along with misrepresentation protocols and seller liabilities.
Escrow Terms
Escrow places funds in a neutral third-party person or entity’s account, to be held until the transaction is cleared or one party pulls out. Escrow is often facilitated by the title agent.
The negotiation will decide on an escrow agent and determine the procedures.
Closing Conditions
Negotiations determine closing conditions, such as deposit refund dates and terms, handling closing documents, property possession, and handling contingencies.
Prorations, Apportionments, Credits
Specify when you – as the buyer – will be treated as the owner and take over expenses, income, and other responsibilities.
Finalize the Deal
Finalizing a commercial real estate deal involves going through signing authentication, title processing, escrow, due diligence, and closing documents.
Signing Authentication
Commercial land deals generally happen between corporate entities. Get a signed and notarized letter from the selling party that designates someone as having signing authority and authorizes the sale.
Title
A title search needs to be done, not only for due diligence purposes but to qualify for title insurance. The title search confirms that the seller is able to sell the property, investigates the chain of title (or title history), and looks for liens, claims, defects, and encumbrances.
Obtain title insurance to protect you from unnoticed or unforeseen title defects.
A title report summarizes the information found about the title and deed’s legal status. The buyer and seller must agree to accept it.
Escrow
Go into escrow, under the conditions determined during negotiation.
Due Diligence
Perform thorough due diligence. It should review the contract, surveys, environmental reports, zoning, liens, easements, and title issues.
Closing Documents
Finalize the deal by exchanging and signing closing documents. This includes zoning disclosures, environmental reports, deeds, liability assignments, and any warranties.
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