More Time is Needed for Commercial Property Due Diligence.

If you have not invested in commercial real estate in the past, but are considering investing in commercial real estate, perhaps as a result of the 32% increase in home prices in the Phoenix area or the low inventories of homes to invest in in the Phoenix area, you should know the due diligence is more involved and more time consuming than purchasing a residential real estate investment property.

The physical inspection, a visual inspection to seek out certain conditions, which may reveal aspects of the physical condition of the property not recognized by the untrained eye. While as a investor you already know it is not a job for your uncle Leroy, who happens to be a “handy man”, but the job also should not be completed by a home inspector either as the building codes vary greatly between homes and commercial buildings and a competent, licensed professional should be hired to inspect a commercial building.

An environmental inspection report should be done by a qualified expert which may may reveal conditions, which may be hazardous to human health, and determine if the property is in compliance with Arizona and U.S. Environmental rules and laws. Since the Superfund Amendments and Reauthorization Act (SARA) specifies that the owner of a contaminated property may be held liable, even if that owner did not release the contaminant, it is advisable you discover any of these conditions before you become the owner of the commercial property.

Zoning for any commercial property should be confirmed as well as investigating any possible future zoning changes. Building, Fire and Safety codes for all commercial buildings should be checked out.
Not only use restrictions but any private deed restrictions should be looked into.

Depending on the results of the previously mentioned inspections, Roof and/or Mold and/or septic and/or phase 2, 3 and 4 environmental inspections may be required.
Depending on the documentation provided or lack thereof, additional inspections or investigating may be desired, such as a survey if accurate square footage, lot size and boundary lines uncertain.

As you can see from this partial list, there is considerable more due diligence to be performed with commercial real estate than there is with residential real estate investment property, and many of these inspections can take more time, so that should be kept in mind and allow enough time to complete your due diligence when considering a closing date.

 


This information is for informational purpose and not intended to be investment advise, and should be explained to you in detail. You should always feel free to consult an attorney and/or tax adviser to obtain further information you deem necessary. I want you to be prepared.

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