Buying a Commercial Building for Investment

The joy of owning your own business. Nothing quite matches it except the satisfaction of owning the building it’s in. No more leases. No more evictions.

Buying a Commercially Zoned Building

Buying a commercial building for your business can up the ante on getting a mortgage. Not only is your loan secured by valuable real estate, but commercially zoned buildings can be sold, leased or subletted. You and your building could be one hot commodity. 

Investing in Commercial Property

Not only is a commercial building a business asset, it can be lucrative for investment clubs or wanna-be commercial landlords. Stock markets soar and dive depending on global and local economies. Commercial real estate holds its value as long as there is a steady demand for warehouses, salesrooms, office space, retail stores or storage facilities in your community. Choose well and If business takes a nose dive, you may be able to convert the space for other uses.

Calculate What You Can Afford

The size and location you can afford depends on your profit margin. Calculate what mortgage payments will cost over leasing a similar space, then add utilities and property taxes. Avoid  frequent moves by getting a space large enough to expand into. Owning allows you to control your monthly costs and build equity. But it also brings new responsibilities, like sharing security, maintenance and upkeep expenses for communal areas like lobbies and washrooms. Include the soft costs of owning a commercial property — legal charges and accounting fees to deal with property liability issues or, if you rent out the space, managing commercial tenants. 

Location, Location, Location

It’s all about the zoning. Where you buy affects your building’s value and what you can do with it. You could save big by buying on a Regent Park side street on the cusp of a millennial makeover. Or go for broke by splurging on the champagne of cannery buildings in Toronto’s Distillery District. But if the zoning won’t allow you to open a dress shop because there’s no room for parking or convert heritage space with antiquated plumbing into a hair salon, it may not be the right location for you. Besides, commercial taxes can be sky high in trendy areas. 

It’s Against the Law

Some commercial uses may be against the law because of environmental or green regulations. Even if you buy an existing business, laws can change. Recently discovered hazards may need to be cleaned up at your expense. Asbestos was commonly used in commercial buildings up to 40 years ago, but contaminated soil, dioxins and hazardous substances like arsenic-treated wood or waste from electrical transformers can also require remediation. Make your offer conditional on a satisfactory environmental site assessment and build contingencies into the agreement that compensate you if the assessor overlooks unknown hazards.

Staying Up to Date

Commercial tenants and business customers alike expect your space to look contemporary, be well maintained, have adequate parking and be safe to visit. Employees are concerned about having a comfortable space to work in, with nearby parking, transit, high-speed Internet service and, hopefully, a coffee shop or two. Customers or employees with disabilities need access too. If modifications are required, negotiate with the current owner before taking on a costly reno. Finding a building in an area with similar aspirations to your own can ensure you attract the right mix of tenants, clients or employees. 

Don’t Forget the Loading Dock

While you’re looking for a space that’s just right for your enterprise, don’t forget you may need to transport goods to your location. Is there a loading dock and freight elevator and are they easily accessible? If not, where will delivery trucks and couriers park? An opening door onto a back alley or side street can be a huge time saver. 

Working With Your Realtor

A commercial realtor can give you the original property listings to compare recent sales prices and any real estate appraisals done lately. Ask for “comps”, real estate listings of comparable buildings to see how yours stacks up price wise. Locate the property survey to show your lender where the property boundaries are, its location compared to surrounding buildings and important physical features. Most commercial advisors are familiar with zoning and environmental regulations in your neighbourhood and can source any development permit issues that could undercut your business. Ask about preferential municipal tax rates that encourage business development. A move a few blocks over can put you in a favourable position. 

What to Bring to Your Financing Appointment

Besides the business plan, financials and agreement of purchase and sale, bring legal and financial documents when you visit your commercial lender. Three months of pay stubs are helpful if you have a side job. Don’t forget your banking records, two years of income tax assessments and letters from other lenders, like the Business Development Corporation, that are financing your enterprise. 

Being Flexible

If COVID-19 taught commercial building owners anything, it’s to stay flexible. No one wants to get caught with a white elephant if the workforce goes home in a pandemic or recession. Before you buy, think about how you could use your space creatively if your whole world changed overnight.

Get a Legal Opinion on Your Agreement of Purchase and Sale

Axess Law Ontario real estate lawyers review your agreement of purchase and sale to protect your legal rights if you amend or cancel a commercial real estate transaction. Make an online video call from anywhere in Ontario 7 days a week, day or evening, at times that work for you. Book your appointment by calling toll-free to 1-877-552-9377 or 647-479-0118 in Toronto or using our online booking form. Our licensed Ontario lawyers can meet with you in person at our Toronto, Scarborough, Vaughan, Etobicoke, Ottawa, Mississauga Winston Churchill or Mississauga Heartland law offices. 

Click here to learn more about Axess Law’s real estate law services.

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