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Whether you are looking to establish an office building, a commercial factory or a winery open to members of the public, Minnesota is sure to have the perfect parcel of land to suit your needs. While properties are typically snapped up quickly, commercial properties on cleared land are available throughout the state.
The process of buying commercial real estate is complex, to say the least. For entrepreneurs who are more familiar with other types of business, the process can be downright daunting. Property valuations are also highly dependent on cycles in the market. Buyers and sellers can take a beating, or make a fortune, depending on the timing of their purchase and sale. While some of the factors are out of your control as a business owner, there are steps you can take to reduce your risks when deciding to invest in commercial property. Carefully considering these aspects can help you prepare for a possible venture into the market of commercial real estate.
1. Buy or Lease?
First, as a business owner, you must decide whether you want to buy or lease a piece of commercial land. Either way, it can be a bit of a gamble. Enlisting the services of a real estate expert can be useful, so that you may engage in a careful economic analysis of the pros and cons of leasing versus buying commercial property. A good real estate expert can provide comments about how the projected future growth of your business and how tax codes may affect your decision in the future.
With unpredictable market swings, you may ask yourself why you would consider buying commercial land when you can lease a similar parcel without the risks associated with buying. Leasing may be advantageous in certain circumstances; however, buying a parcel of land firmly sets the price that you, as a business owner, will pay for the overhead cost of land on a monthly basis. For example, if the supply of viable commercial properties available for lease dwindles, you, as a tenant, may face dramatically rising rents owed to your landlord. In such a situation, the landlord is confident that they will be able to find another tenant for the property if you balk at a higher price. In addition to evening out the risks of the real estate market, buying can be a good financial investment if you plan your purchase strategically. Generally, land values will appreciate over the years, leading to gains when you decide to sell the property. There may also be tax benefits your business can avail itself of when it buys commercial real estate.
There are also risks to buying though, too. An area which is desirable this year, may not look so good next year. Buying property ties up a lot of your business's cash reserves. It may be difficult to pay unexpected expenses if your money is tied up in commercial real estate. If you plan to lease your property out to tenants, you may have to deal with unexpected disputes. A building may be in need of extensive repairs which can be difficult to predict. Furthermore, if you decide you want to sell in the future, the successfulness of your sale may be very dependent on the real estate market at the time, which can be nerve wracking to say the least.
2. Assemble a Team of Experts
Before you buy, there are a multitude of things you must do. You will need a team of support people as you embark on this journey. Before you do anything else, sit down with a business accountant to analyze what your business can afford and what the tax implications of purchasing commercial land will be. Then, sit down with a lender to see what sort of interest rates are available for commercial loans. Having this conversation with multiple lenders may be advantageous as they may try to compete regarding interest rates and financing options. Familiarize yourself with the commercial loan process. Commercial lending can be much different than residential mortgage lending that many of us are familiar with.
Once you have an idea of what your business can comfortably afford, engage the services of a commercial realtor to assist you in the process of identifying and securing a particular piece of commercial property. There are countless considerations when looking to buy commercial property. Location is important and you want to have readily available access to transport your goods and services to your customers. If the property is not accessible to the people who need to reach you, it will negatively impact your business prospects. Minnesota offers an ideal location for many businesses, given its location in the upper Midwest near Chicago and many other major American cities. Consider the physical attributes of the property where you would like to build. Are there zoning restrictions that will impact your intended use of the land? Are there environmental concerns that will impact your building project or, ultimately, the business operations you intend to conduct on the land? Is the land in a preserved historic district? Such areas may impose strict regulations on the building options available to you and your business.
Hire an attorney to help you double check on zoning restrictions for the property you have identified. If you are an insurance agent, you may need commercial office space. A factory may require industrial zoned land. Purchasing land that is zoned correctly is crucial as it may be very difficult, if not impossible, to change the zoning at a later date. Your attorney can also take a close look at any necessary documents as you navigate through the purchase process. While it is the attorney's job to make sure that all contingencies are carefully spelled out in contracts and other binding documents, don't be afraid to ask detailed questions along the way. You are a business owner, not necessarily an expert in the purchase of commercial real estate. The people that you employ to assist you must provide you with adequate guidance along the way. Having your questions answered and problem addressed immediately will help prevent future, unforeseen problems from cropping up.
Hire reputable architects, engineers, environmental consultants, and contractors for the project itself. Having conversations with other local individuals and businesses who may have used such architects and contractors in the past can help you identify the strengths and weaknesses of your prospective contractors.
3. Starting the Process
Throughout the building processes, make sure you are vigilant in being present and inspecting the work that has taken place so far. Looking over the shoulders of your contractors helps make sure they are not cutting corners. It is also a great way for you to have any questions you may have answered along the way. Purchase adequate insurance to protect yourself in the event of unforeseen problems.
The process of buying commercial real estate for a small business owner can certainly be daunting and risky; however, if you approach the process carefully, and are lucky enough to time the real estate market correctly, it can be a tremendous investment for your business. While hiring the right professionals may be expensive, it can also help save your business substantial money in the long run.
*This article is not intended to serve as legal or financial advice. Make sure you consult with your own team of experts prior to embarking on any sort of decision regarding the lease or purchase of commercial real estate.
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