Buying Commercial
Real Estate in California
Buying commercial real estate in CA is not like purchasing a new family home. The costs are higher, funding is harder to secure, and if you need tenants, you will have to cover the expenses of marketing, identifying, and securing new leases. Purchasing commercial property for a new investment endeavor or a new business can be rewarding and profitable if done strategically and in compliance with state, city, and local laws.
At Bay Legal, PC, our commercial real estate attorney in California handles commercial property transactions from start to finish. We will discuss your goals, help you find the right property, negotiate contracts, and more. Contact us at 650-374-7900 to schedule a consultation and learn more about our commercial real estate services.
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Types of Commercial Real Estate in CA
Commercial real estate (CRE) refers to property used for business purposes rather than residential. CRE can range from small stores to large shopping malls and includes:
- Restaurants
- Hotels
- Office spaces
- Hospitals
- Doctors’ offices
CRE is generally divided into five categories:
Industrial Use
Properties used for manufacturing and storage, such as manufacturing facilities and storage warehouses.
Multi-Family Rentals
Large properties with multiple units rented to families as their primary residence. These can range from small properties housing a few families to large ones housing hundreds.
Office Space
Office spaces are often considered high-risk and are categorized into:
- Class A: High-quality buildings in prime locations.
- Class B: Older but still high-quality buildings.
- Class C: Older buildings requiring significant maintenance.
Hospitality
Properties meant for travelers, such as hotels, entertainment sites, and restaurants.
Retail
Properties like small stores, strip malls, and restaurants.
Commercial Real Estate Purchasing Process in CA
Buying commercial real estate can be a valuable investment if handled properly. The process includes several steps, though exact procedures may vary depending on jurisdiction.
Identification of a Property
Key considerations when locating a property:
- Property history and income potential.
- Location and demand for the type of CRE.
- Necessary improvements to make the property suitable for its intended purpose.
A real estate lawyer specializing in CRE can assist in finding the right property.
Decide on the Initial Offer Price
The asking price should be carefully evaluated using approaches like:
- Income Capitalization Approach: Dividing net operating income (NOI) by the capitalization rate.
- Cost Approach: Calculating the cost of building the property, including land and construction costs, minus depreciation.
Purchase and Sale Agreement
This agreement outlines the sale’s terms. At Bay Legal, PC, we:
- Negotiate, draft, and review agreements.
- Ensure the terms align with your needs and avoid hidden clauses.
Financing and Inspection
Securing financing involves comparing lenders for:
- Interest rates
- Fees
- Penalties
Common financing options include:
- Permanent loans
- Small Business Administration (SBA) loans
- Bridge loans
- Hard money loans
Typically, buyers make a down payment of 20–40% of the purchase price.
Close on the Property
Once the terms are finalized and financing secured:
- Conduct a title search.
- Execute necessary documents.
- Complete the purchase and proceed with plans for the CRE.
Factors to Consider Before Purchasing Commercial Property
Questions to address before buying CRE:
- Will the property meet long-term needs?
- How involved will investors be in managing the property?
- How will local demographics impact the property’s success?
- What are the zoning laws in the area?
Hiring a professional can help navigate these complexities.
Commercial Property for Investment Purposes
Popular investment strategies include:
- Land Banking: Purchasing and holding land to grow capital.
- Development: Buying raw land to build on.
- Fix and Flip: Renovating and reselling properties for profit.
- BRRRR: Buying, rehabbing, renting, refinancing, and repeating the process.
- Wholesaling: Buying contracts below market value and assigning them to buyers.
- Passive Investment: Investing through partnerships, crowdfunding, or the stock market.
Bay Legal, PC can help determine the best strategy based on your goals.
Seller Disclosure Requirements in CA
Disclosure requirements for commercial properties vary by state. While residential properties often have stricter regulations, commercial properties may only require disclosures about:
- Property defects
- Environmental concerns
Buyers should be aware of their jurisdiction’s requirements, conduct thorough inspections, and seek accurate information from the seller.
Contact a Commercial Real Estate Attorney in California Today
Buying commercial property is more complex but also more profitable than residential properties. At Bay Legal, PC, our real estate attorney will guide you through the process to ensure a smooth transaction. Contact us by filling out our online form or calling 650-374-7900 to schedule a consultation and learn more about real estate investments.
Contact Bay Legal