Since there’s always some degree of risk when purchasing commercial real estate, it’s essential to perform due diligence. During this process, you will have the opportunity to perform background checks and evaluate the space to ensure it’s valued appropriately. For insight into due diligence and what to expect, here’s a helpful guide.

Due Diligence & Its Benefits

Once you sign a contract to purchase commercial real estate, the due diligence process initiates. During this period, you and your broker will survey the property, inspect for potential issues, and ensure you’re making a wise investment. This process is critical for the buyer, as it enables you to verify the property’s actual value and mitigate financial risk.

Generally, you’ll agree to a due diligence timeline with the seller to obtain all the relevant information while a purchase and sale agreement (PSA) is negotiated. Typically, the PSA is valid for 60 days, including a 30-day due diligence period.

The Steps

During your due diligence period, you’ll examine a number of factors before finalizing the deal with your seller. First, you and your acquisitions team should conduct a thorough examination of all building documentation, including lease agreements, title documents, and maintenance agreements to ensure there are no discrepancies.

After all paperwork is in order, work with a professional inspector to ensure the building is in excellent standing. Your inspector should examine the current condition of the roof as well as ensure that the boiler is up to safety standards, for example.

After you’re confident that the building is up to code, it’s time to get the finances in order. Investigate the property’s cash flow to confirm that it matches the seller’s projections. You can also perform several audits, such as lease audits and a cost analysis.

A PSA generally requires the seller to provide access to all leases of the property so that you can review previous move-in dates, renewal options, and past security deposits. A cost analysis will inform you of the expenses you can expect and will help you determine where to reduce costs. For instance, by looking at past insurance policies, you can potentially research more affordable coverage to see where you can cut costs.

If you’re looking to purchase commercial real estate, trust KW Commercial in Florence, KY. This reputable real estate agency will work closely with you to find the perfect property at an affordable price. Whether you’re looking to buy a building for the first time or need assistance with a real estate listing, you can always rely on their seasoned real estate team to respond to your inquiries within 24 hours. If you’re ready to start maximizing your commercial real estate potential, call (859) 359-6805. Visit them online for more information.