When you buy a house, sometimes an existing home is a great investment because of its location, amenities, and move-in-ready condition. Other times, it pays to buy a lot in an up-and-coming neighborhood and build to suit your tastes and needs.
The same goes for commercial real estate investment.
Depending on the nature of the investment and your goals for the property, you could turn a much larger profit by buying commercial land for sale.
Whether you’re buying land for future property investment purposes, business growth, or a long-term investment, there are many factors that go into making the best purchase possible. Here are five things to consider when buying land for commercial real estate.
Location, Location, Location
This popular adage is true for commercial real estate, and it’s especially true when buying land for commercial investment. The location of the commercial lot or land can make a huge difference to the return on your investment. Ideally, you want to find a lot that’s convenient for customers, easy for commuting employees, and adjacent to suppliers or supply lines. And if you’re lucky, you’ll find a lot in the path of development before prices start to rise.
It may seem like all these stars would only align once in a blue moon, but seasoned investors understand the secret: market research. Even within a small market like the Asheville MSA, prices can vary widely. Not only do you want to make sure you’re buying in a location with high growth potential, but you want to make sure you’re paying the best market value for the land. Your commercial real estate agent is an essential resource for better understanding your local market, getting access to information about property values in your area, and being confident in what you are purchasing.
Zoning & Infrastructure
Along with considering the land’s location, it’s important to consider what you’re allowed to build in that area. As part of your market research on the property, your agent will help you determine what the local (and potentially overlapping) zoning regulations are for that property—and whether it matches your goals for the land. For example, if you want to build a medical office, your zoning requirements will be very different than if you want to build an industrial warehouse. Requirements for things like potential setbacks and parking will also shape how the land can be used.
Along with the city’s requirements, you’ll want to check on available infrastructure for the land. Are public utilities available? Will you need to pay to bring phone and internet services onto the property? Is there legal access by road or right-of-way? Sometimes it pays to be the first investor in an area, while other times your investment comes with many extra requirements.
Condition & Grading
Once you’ve looked at where a lot is on Google maps and on the zoning map, it’s time to go examine the condition of the land itself. Depending on how a particular property has been used in the past, it may take a lot of work to bring it up to the right condition for your development goals. For instance, does an old industrial site have chemical contamination and require extensive remediation? Does raw land require clearing and grading?
Especially here in the mountains of Western North Carolina, grading can be a determining factor for how a land lot can practically be used. As you compare sites, keep in mind the amount of grading work a property may need before it can host a building, a parking lot, and any other amenities.
Budget & Financing
Purchasing commercial land requires financing. Step one when taking out a real estate loan is to understand your own budgetary limits. When it comes to commercial real estate, you must also know what types of financing are available for the type of property you are purchasing.
As you budget, keep in mind that the final purchase cost of the property is rarely the same as the final list price. You should expect unexpected expenses and fees. There are the surveys, fees, permits, legal costs, and assorted charges inherent to any real estate transaction. But you may also be charged impact fees, mitigation fees, service availability charges, or facility fees. In addition, insurance rates can vary depending on your site-specific factors, such as location in a floodplain or high-wind zone, or your distance from a water source or pressurized hydrant in case of fire.
Due Diligence
When keeping all the above information in mind, you may feel like it’s impossible to make a smart investment. In that case, it’s most important to do your due diligence. Doing your research—crossing all your T’s and dotting all your I’s—is the best way to feel confident in your commercial land purchase.
Here are a few additional factors to consider as you go through the due diligence process:
- Restrictions – Check for any legal restrictions, such as liens, deed restrictions, covenants, easements, or other encroachments on the property. Do local, state, or federal regulations add any additional restrictions, such as from wetlands, water frontage, or historical sites?
- Surveys – As with any other real estate transaction, a recent survey conducted by a licensed surveyor will show you exactly what you will own—and what you won’t.
- Neighbors – You want to buy land in a good location, and part of that consideration is who lives next door. Adjacent businesses can help bring in customers or drive them away, affecting your property value in the process. Nearby road and infrastructure construction could prohibit traffic to your site in the short term. But additional development could be a huge boon in the long term.
- Accessibility – Compliance with the Americans with Disabilities Act should be a consideration from Day 1, not an afterthought. Avoid potential lawsuits and costly retrofitting by hiring an ADA consultant to supervise design and construction from the beginning.
- Environmental Factors – You are focused on your investment goals for the land, but what else does the land offer or require from you? Are you buying water and mineral rights? Have previous operations left sinkholes, underground caves, caverns, or mining shafts? Also, are there endangered or protected species on the land?
- Future Expansion – Last but certainly not least, does the land have potential for future expansion? If you’ve bought the perfect site to help grow your business, how much can your business grow before it outgrows the land? Conversely, if your business doesn’t grow, is the property structured in a way that allows you to rent out your surplus space?
Ready to Invest in Lots and Land for Commercial Real Estate?
Does this answer all your questions about what to consider when investing in lots and land for commercial real estate? Begin your commercial land search today!
NAI Beverly-Hanks continually strives to be the best in the business and provide you with the expertise you need. Contact us today to speak with an NAI Beverly-Hanks agent about finding the perfect lots and land for your commercial investment goals.