Investing in Commercial Real Estate

Whether you are looking at purchasing a multi-residential building, a retail stripe plaza, a medical building, a motel or a senior citizens residence, all will be consider as a commercial investment.

To determine if a property is a good investment, an analysis of the preliminary numbers is mandatory. My recommendation is that you make sure that your covering ratio comes at a 1.2 minimum. If it does, place an offer.

The process of purchasing a commercial investment is much longer than the purchase of a residential property. It can take weeks even months of negotiation before there’s an agreement signed between the seller and purchaser. Once the offer is accepted you will need to get an environmental assessment phase 1, if it passes then you would need to have an inspection done by a professional.

Depending on the result of the environmental assessment phase 1, sometime the lender may ask to have a second environmental assessment done. This is called phase 2 and will take the testing to another level; which is more complex and costly.

While you are having these assessments done you will receive a lot of documentation to review. From receipts, bills,financial statements, leases, all to be reviewed by you and/or a professional to ensure that the revenue is strong and everything is accurate.

To qualify for such a purchase, the revenue and expenses of the property are the main components used to see if the property is making a profit. This is what we call the coverage ratio. Lenders will be eager to extend a mortgage for a building that shows a 1.2 coverage ratio. Which means that for every dollar spend, a dollar twenty of revenue was made, bringing a 20% profit.

As a buyer, you will need to show that your personal debts are covered by your personal revenue. Note that whether you purchase the building in your name or in a corporation’s name, you will need to personally guarantee the purchase of the revenue property. And let’s not forget that you will need to show you have the proper down payment to acquire the building.

It’s fun, exciting and thrilling once you have completed such transaction. The key is to be calm, confident and patient every step of the way. Enjoy the process as much as you can.

If you require assistance, contact me and I would be pleased to assist you.