When commercial rents are on the rise, some companies start thinking about buying commercial real estate instead of renewing their existing lease. Many factors must be considered when making this decision, such as your financials, future growth plans, and an exit strategy.
If you decide that buying commercial real estate is the best scenario for your business, you should make yourself aware of the costs associated with buying commercial real estate before starting the process. As a first step, you need to talk with your accountant and a lender to get pre-qualified for a loan. There is no point in touring properties that you cannot afford. Most businesses have to secure a loan in order to buy commercial real estate, and every lender has slightly different requirements to secure the loan.
As a rough estimate, a business owner should allot for a minimum of $7,000-10,000 in costs associated with buying commercial real estate. This does not include your down payment or earnest money. This number varies greatly as each lender will have a list of approved vendors that you must use. These vendors often cost a little more than just calling someone from the phone book. However, they are who your lender knows, trusts, and mandates you use if you want a loan from them.
A nice thing about using a lender to buy commercial real estate is that they conduct the vast majority of due diligence for you. Most lenders do not require a property inspection though. If you plan to be an owner-occupier of the property, you’ll want to have a property inspection done on your own.
A breakdown of some of the costs associated with buying commercial real estate can be seen below. The time periods and pricing shown are rough estimates. Your chosen lender should be able to provide you with more exact amounts based on their approved vendor list.
Property Inspection: This will likely cost around $1,000 and can take 10-14 days to see the report.
Property Survey: This will cost about $2,500-3,000. Fees vary based on the lender requirements. The report should only take a few days.
Property Appraisal: This can range from $300 to a few thousand dollars. This all depends on how competitive the market is and what the appraiser of your lender’s choice charges. This report should only take a few days as well.
Environmental Assessment: This ranges greatly depending on the type of assessment your lender requires you to get. The minimum cost to be expected is in the $1,000-2,000 range. It can be much higher though if the lender is worried about the property’s previous use history. For example, if it is suspected that the property may have been a gas station or laundromat in the past, this assessment will be much more detailed and expensive. It can take 14-21 days to receive this report.
Along with the costs stated above, your lender will likely have some additional fees to bring you to the $7,000-10,000 amount. If you are seeking commercial real estate for lease or purchase in Texas, please fill out the “Free Commercial Space Survey” to get a customized list of the available options that best fit your needs.