Before you worry about how to buy commercial real estate, you will need to focus on what type of commercial real estate strikes your interest. In general, there are eight different kinds of commercial real estate:
So remember, before you worry about how to buy commercial real estate in Canada, you need to decide which type of property you want to buy.
Once you have decided on the type of commercial real estate you are buying, you need to know whether you are buying the property for personal use, or if you are simply looking to buy a commercial income property.
Each of these processes are going to look a bit different, so while you are looking at how to buy commercial real estate you should always keep this factor in mind.
Buying owner-occupied commercial real estate is typically the easiest way to buy commercial real estate. After all, in these cases you are not working out how to buy commercial real estate that someone else would want, you are simply looking for a property that suits your needs.
For example, let’s say you are looking to open a dentists office, you are going to have a list of things you need the property to have in order for it to be a good fit for you. This may include a waiting room off the entrance, a certain number of examination rooms, space for an office, and a secure area for equipment and file storage.
If the property meets your needs, you will then be free to pursue financing and complete your purchase.
Financing an owner-occupied commercial property is relatively similar to buying residential real estate.
This is because one of the main things the lender is going to look at while you are shopping for a mortgage is your income. However, instead of your personal income, they will instead be looking at your business income to ensure your business is profitable enough to support the mortgage payments, taxes, insurance and other expenses on the property.
The true complications in learning how to buy commercial real estate come into play when you start buying commercial income properties.
This is largely because instead of buying a property that suits your own needs, you need to buy a property that is going to attract tenants.
The type of property you buy is going to change the type of tenant you attract. While you could always use commercial real estate to house your own business, most of the time you are going to rent these properties out.
Another important part of learning how to buy commercial real estate with multiple tenants is understanding the role of an anchor tenant.
An anchor tenant is a larger, prominent tenant with two jobs, covering a large part of the mortgage and attracting other tenants to the property.
A great example of an anchor tenant is Walmart, many shopping centers will introduce a major retailer like Walmart to their property in order to attract large crowds. As a result, additional tenants are attracted to the property in hopes that some of Walmart’s existing consumer base will visit them as well.
Ideally, you want to secure this tenant first so that you can use them to advertise your property to other potential tenants.
When you are securing financing for a commercial income property, there are a few things the lender is going to look for.
First, the lender will want to know if you already have a tenant lined up for the property. If so, your financing process should go much more smoothly because you will be able to use the agreed-upon rent to calculate the profitability of the property and determine the risk level.
Next, the lender may want to see the previous financial performance of the property to make sure they are not lending against a property with a history of consistent turnover. This is especially important because if you ever default on the property, they want to make sure it can hold a tenant and resell easily.
Finally, most lenders will want to get a clear look at your portfolio and your income to make sure that in the event of a vacancy, you are not likely to default on the mortgage.
