3 Ways Buying Commercial Property For Sale Is Different Than Residential
When buying commercial property for sale, there are a few important differences between residential and commercial properties that you should consider before you make your purchase. Here are three key differences between residential and commercial property purchases to consider when assessing a potential investment.
Available Financing Options
The first major difference between buying residential and commercial real estate is the financing options available. For example, if you're purchasing a residential home, you can get pre-approved for financing through banks or other traditional lenders. However, with commercial real estate, more creative financing strategies are necessary since these types of properties tend to require much larger investments than residential homes do. Therefore, buyers often have to look into alternative financing sources such as private money lenders or hard money loans to purchase their desired property. Additionally, buyers might have to provide a larger down payment than they would with a residential purchase.
Another significant difference between buying residential and commercial real estate is the tax implications of each purchase type. Residential purchases usually involve smaller costs overall, so the tax implications tend not to vary widely. However, when purchasing a commercial property for sale, taxes can vary widely depending on the location of the property and its intended use — office, retail space, multi-family residential, industrial, etc. Furthermore, taxes associated with commercial property for sale can quickly become very complex and difficult to navigate without professional help from an accountant or lawyer specializing in this finance area.
Residential appraisals are fairly straightforward. The bank or finance company hires a third-party appraiser to determine the fair market value of the home by comparing it to others in the area that are similar in size to the subject property that recently sold. They adjust the value up or down accordingly. On the other hand, commercial property for sale is valued based on the revenue it can produce. In other words, the value of a commercial property is determined by how much rental income you can generate from it. A commercial appraiser examines both the physical property, including its size, amenities, and location as well as the total number of rental units and income potential.
When buying commercial property for sale, there are many factors that must be taken into consideration before making any kind of commitment. Understanding these key differences and working with an experienced commercial realtor can help you make an informed decision. For more information, contact a company like Vancouver Business Brokers.