How to buy commercial real estate

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Page written by Ashlyn Brooks. Last reviewed on August 23, 2024. Next review due October 1, 2025.

Acquiring commercial real estate is a significant milestone for any business or investor, offering opportunities for growth, income, and asset appreciation. However, the process isn’t always straightforward, especially when it comes to funding options.

Let’s walk you through how to find commercial real estate for sale, how much money you’ll need, different ways to purchase it, the funding options available, and the advantages and disadvantages of ownership.

Keep reading to see how Swoop can support you in this important venture.

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How to find commercial real estate for sale

Finding the right commercial property is the first step in your buying journey. There are several avenues you can explore to locate potential properties:

Commercial real estate websites: Platforms like LoopNet, Crexi, and CoStar offer multiple commercial property listings for sale. These sites allow you to filter results based on location, property type, price, and more.
Real estate brokers: Working with a commercial real estate broker can provide access to off-market deals and expert advice tailored to your specific needs. Brokers often have insider knowledge of upcoming listings and can guide you through the negotiation process. A real estate broker is like a strategic advisor, offering comprehensive expertise and access to a broader range of resources, as opposed to a realtor, who is more of a transaction facilitator, focusing on guiding you through the buying and selling process.
Networking: Attend industry events, join real estate investment groups, and connect with other investors. Networking can open doors to opportunities that aren’t publicly listed.
Direct outreach: If you have a specific property in mind, you can approach the owner directly. This method requires research and persistence but can lead to unique investment opportunities.

How much money do I need to buy commercial real estate?

As of July 2024, the average price per square ft was $8 for industrial space, $23 for retail, and $37 for office space. But it goes without saying the amount of money you need to buy commercial real estate varies widely based on several factors, including the type of property, location, and the financing options available to you. Here’s a breakdown of the costs you should consider:

Down payment: Typically, commercial real estate loans require a downpayment of 20% to 30% of the purchase price. For example, if you’re purchasing a property for $1 million, you’ll need between $200,000 and $300,000 for the down payment.
Closing costs: These include fees for appraisals, inspections, title searches, legal services, and loan origination. Closing costs usually range from 2% to 5% of the purchase price.
Renovation and repair costs: If the property requires improvements, you’ll need additional funds for renovations and repairs. These costs can vary significantly depending on the property’s condition and your intended use.
Operating expenses: Consider ongoing expenses such as property taxes, insurance, maintenance, and utilities. These costs should be factored into your budget to ensure the property remains financially viable.

3 Ways to buy commercial real estate

There are several strategies to purchase commercial real estate, each with its own set of advantages. Here are three common approaches:

1. Purchase property yourself

Buying commercial real estate outright is the most direct method. It allows you to have full control over the property and its operations. This approach is ideal for investors with sufficient capital and those who want to manage the property personally.

The downside to this is using your capital; many investors find it a better use of funds to obtain funding through a third party to keep liquidity in their personal capital.

2. Find a partner

Partnering with another investor or business can help you pool resources and share the responsibilities of property ownership. This method can reduce your financial burden and provide additional expertise. However, it also means sharing profits and decision-making power.

3. Invest in real estate syndication

Real estate syndication involves pooling funds from multiple investors to purchase a property. This method allows you to invest in larger, more expensive properties that might be out of reach individually. Syndications are typically managed by a sponsor who handles the day-to-day operations, making this an attractive option for passive investors.

What are the advantages of owning commercial real estate?

Owning commercial real estate offers several advantages that make it an attractive investment. First, commercial properties often generate higher rental income compared to residential properties, with long-term leases providing a stable revenue stream. Additionally, these properties tend to appreciate in value over time, giving you the potential for capital gains when you decide to sell.

There are also significant tax benefits, as owners can deduct mortgage interest, property depreciation, and operating expenses, which can lower overall tax liability. Plus, owning commercial real estate gives you direct control over how the property is used, managed, and improved, allowing you to align it with your specific business goals.

What are the disadvantages of buying commercial real estate?

While owning commercial real estate has its benefits, there are also some disadvantages to consider. The initial costs can be quite high, with significant upfront expenses like down payments and closing costs, which might be a barrier for some investors. Managing commercial properties requires a lot of effort, including handling tenant relations, maintaining the property, and ensuring compliance with regulations. This can be time-consuming and might necessitate hiring a property manager.

Additionally, the commercial real estate market can be volatile, with property values and rental demand fluctuating due to economic conditions, which can impact your income and the property’s long-term value. Lastly, commercial real estate is less liquid compared to other investments, meaning it can take time to sell a property, and you may not be able to quickly access your capital when needed.

Can I buy commercial real estate with no money?

Buying commercial real estate with no money down is challenging but not impossible. Here are some strategies that can make it feasible:

No collateral loans: Some lenders offer loans that don’t require traditional collateral, making it possible to secure financing without putting up significant assets. These loans often have higher interest rates but can be an option if you lack upfront capital.
No-doc loans: No-documentation loans, or “no-doc” loans, are designed for borrowers who may not have the standard income verification documents. While these loans typically come with stricter terms and higher interest rates, they can provide a pathway to acquiring commercial real estate without a large initial investment.

For those willing to explore less conventional and potentially more cumbersome options, consider the following strategies:

Seller financing: In some cases, the seller may be willing to finance the purchase, allowing you to make payments directly to them instead of securing a traditional loan. This can reduce or eliminate the need for a large down payment.
Lease with option to buy: This arrangement allows you to lease a property with the option to purchase it later. A portion of your lease payments may be applied toward the purchase price, allowing you to build equity over time.
Partnering with investors: As we mentioned earlier, by partnering with investors who have the capital, you can acquire a property with little to no money down in exchange for a share of the profits.

Get started with Swoop

Swoop offers a comprehensive platform that connects you with a variety of funding options tailored to your specific needs. Whether you’re purchasing a property outright, looking for a partner, or considering real estate syndication, Swoop can help streamline the financial process, ensuring you have the resources to make your investment a success.

Visit our website to explore available funding options and take the next step toward securing your commercial real estate investment. With Swoop, you can simplify the buying process and confidently move forward in your real estate journey.

Written by

Ashlyn Brooks

Ashlyn is a personal finance writer with experience in business and consumer taxes, retirement, and financial services to name a few. She has been published in USA Today, Kiplinger and Investopedia.

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