Step-By-Step Guide to Buying Commercial Real Estate

Step-By-Step Guide to Buying Commercial Real Estate

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When the average person thinks about investing in Canada’s real estate market, they picture the hustle and bustle of flipping homes and daily interactions with tenants. That’s just one side of the real estate market. There is also a whole world of possibility to explore in the commercial real estate market.

Table of Contents - Step-By-Step Guide to Buying Commercial Real Estate

Consider this: the Canadian economy is currently one of the strongest in the world. In 2019, the economy expanded by 1.6 percent. In 2020, even in the wake of the COVID-19 epidemic, the Canadian economy is still projected to grow as much as 1.8 percent. That may not seem like staggering growth, but it’s the kind of consistency that several countries will be sorely missing in 2020, and it’s a clear sign that Canada is becoming more attractive to businesses small and large, new and old.

All those entrepreneurial endeavours will need space to build, and that means they’ll need commercial locations. Here are some factors to consider if you’re intrigued by the possibilities of new investment in commercial real estate.

Types of commercial real estate

Before you can find the right investment opportunity, you will need to focus on what type of commercial real estate strikes your interest. In general, there are four different kinds of commercial real estate:

  • Office Space is home to a variety of businesses that do not require space for traditional customer interaction.
  • Retail Space is for shops and restaurants that cater directly to consumers.
  • Multifamily Units encompass apartment buildings or complexes with five units or more.
  • Industrial Property houses manufacturing and warehousing businesses.

As you can imagine, the sector of commercial real estate where your interests lie will have several nuances that require years of experience to learn.

Consider starting with a REIT

Because of the intricacies involved with investing in commercial real estate, novices, especially those with a limited budget, may find a lot to love by opening their commercial career with a real estate investment trust (REIT). Think of a REIT as a hedge fund that focuses solely on real estate. These companies are operated by professionals at the top of their game who invest in a variety of real estate ventures using capital from investors (like you) who purchase shares.

Though riskier than a standard government bond, REITs are considered a relatively safe bet in the world of investment. Best of all, there are a variety of REITs focused on different sectors of the residential and commercial real estate markets, which means you can take your pick. For a rookie hoping to learn the ins and outs of a specific sector of the Canadian commercial real estate market, learning how various REITs track and choose investments can prove an invaluable education.

Determine your budget (and stick to it)

For those people who want to dive right into commercial real estate, the first thing to do is establish your budget. First-time commercial real estate investors are best served by working on this figure with the help of an accountant who has experience in the field.

The popularity of the Canadian real estate market makes it extremely competitive, as well. Properties enter and leave the market almost on a dime. It’s easy for a novice investor with a vaguely-defined budget to get swept up in that drama and pay far too much for their first property.

That doesn’t mean you can’t enter the market, it just means that you have to set a reasonable budget and remain patient while you wait for the right opportunity for you. It may not happen overnight, but if you stay true to your financial capabilities, you can hardly go wrong.

Go local, go urban

When you’re working out your budget, you will want to take into account a handful of geographical considerations. Experts suggest that if you’re going to invest in a property, make sure it’s somewhere that you can readily visit. It doesn’t need to be in the same town you live in, but it should be somewhere that you can get to within a day. This makes you more inclined to visit, which will, in turn, keep you focused on the property itself.

When you’re looking for a place that’s easy to visit, you can hardly go wrong by searching through the urban markets. Over half of new immigrants to Canada are settling in and around three major metropolitan areas: Toronto, Vancouver and Montreal. That makes commercial investment opportunities in these areas a strong long-term bet as offices and shops will continue to crop up to meet the growing demand.

Once you’ve chosen a robust urban area in which to invest, you can start researching average building costs, the potential for urban renewal and several other factors that will go into determining your budget.

Secure Commercial Real Estate Financing

Now that you know how much you want to spend, the next step is to shop for a reliable commercial real estate loan. Adding an experienced commercial broker can go a long way toward reducing the stress of securing a loan for your needs.

As you’re searching, banks and financial institutions will want to see strong financial statements and projections, but don’t go overboard. Remember, financial institutions make their money by betting pessimistically. It’s better to remain humble about your expectations and be pleasantly surprised than to overextend yourself before you begin.

Give our friends at LendCity Mortgages a call at 519-960-0370 and they can help guide you through the commerical real estate financing and help you maximize your interest savings and portfolio growth.

Due diligence

One of the final steps, when you’re purchasing commercial real estate in Canada, is to cover the due diligence. Once you’ve agreed to the purchase of a property, it’s on you to research any title and zoning documentation and review any surveys or leases that apply to the property.

In most cases, due diligence comes as part of the back-end of any commercial real estate deal, but it’s not a given. Before you enlist legal counsel to help with a commercial real estate deal, make sure that they’re willing to oversee the due diligence when the time comes.

After you’ve followed these steps, you can rest assured that your commercial real estate investment is the best decision you can make.

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Scott Dillingham

Scott Dillingham

I have been investing and lending to real estate investors for nearly 10 years now. After thousands of successful deals between flips, rent to owns, student properties and commercial assets I have developed a deep knowledge of real estate investments and have a passion of sharing this information with the world! If your looking for a lender who specializes in rental property financing you're going to want to connect with me at team@lendcity.ca.