If you're investing in commercial real estate, you want to make sure you're using your money wisely and getting the best deal possible so that the property continues to generate income for you. Part of negotiating a good deal is knowing as much as possible about the property to ensure that you're paying what it's worth and know the costs that may come up in the future. During the time allotted to you for inspection and due diligence, you should conduct a property condition assessment to help you understand the big picture. Here are the primary benefits of performing such an assessment.
Understand a Property's Maintenance Requirements
One of the most beneficial aspects of conducting a property condition assessment is getting to inspect the property from top to bottom to see what issues require one-time repairs and what issues will need ongoing maintenance. You've made an offer for the purchase price, but you can't truly understand the risk of your investment until you calculate for annual maintenance costs. If you plan to rent out the property to tenants or if the property currently has tenants, knowing the property's maintenance needs will help you calculate how much rent to charge to ensure that the building generates a nice return on your investment. You wouldn't want to purchase a warehouse, retail space, apartment building, or other commercial property for a good price only to find that monthly maintenance costs eat up all your profits.
Spot Red Flags Early
It's possible that your property condition assessment will turn up issues so significant that you are advised to walk away from the deal. It's unfortunate, but it's better to be made aware of cracks in the foundation, a dilapidated roof, or construction defects during the inspection phase than if you took ownership of the property and had to foot the bill for all the repairs, causing you to lose money on the deal. In addition, if the current property owner tries to avoid an assessment or keeps areas of the property hidden, that's a red flag that the seller may not be worth doing business with.
Get an Advantage in Negotiations
Knowing about the property's condition gives you an edge when negotiating the final sale price. If you made an offer before the inspection turned up evidence of extensive repairs, you are well within your right to require those repairs be made as a condition of the sale or to lower your price accordingly. You may be able to negotiate a significantly lower sale price based on the property's maintenance needs if the seller is eager to close the deal.
Commercial real estate can make a profitable investment, but it's important to calculate ongoing expenses like property maintenance in order to determine if a specific real estate transaction is a good deal for you. Be sure to include a property condition assessment in your inspection period.