Purchasing commercial land can be a good investment for those that understand the process. While some investors purchase commercial land with the idea of holding onto it until the value of the property goes up, a profit can also be made by building your own business on it or by selling the land to developers. With detailed research on the commercial property and enough money to purchase it, a good investment can be made.
Get approved for a business loan. Obtaining finances to buy a commercial property is very different from getting a loan to buy a personal residence. You will need to contact a commercial lender that specializes in making business loans. Keep in mind that commercial lenders will require the land to meet certain standards. Commercial lenders usually require you to provide proof of the land’s market value, commercial zoning approval and a current survey of the land among other items before approving the loan. A business loan of this type will also be financed at a higher interest rate than other types of loans. You will need to have enough money to put toward the down payment of the land. This can be as high as 20 percent. Commercial lenders also have a minimum amount that they can lend out. If your personal bank does not make commercial loans, ask them to recommend a commercial lender. You can also go online to learn more about qualifying for a small business loan through the Small Business Administration (see Resources).
Contact an experienced real estate broker. Working with an experienced real estate broker or an agent that can help you find a good investment property is also important. Experienced commercial brokers and agents understand how to assess the value of land and can provide guidance throughout the closing process. They are also well connected within the commercial real estate community and have exclusive knowledge of which properties are listed for sale. Zoning regulations, property taxes and the environmental tests that must be completed are some of the areas that an experienced real estate broker can assist you with when you purchase commercial land. To locate a real estate agent or broker in your area, visit the National Association of Realtors online at realtor.com. The site will help you locate a broker or agent by area and offers professional designation information about each broker. A few of the professional designations you should look for include the Certified Commercial Investment Member (CCIM) and the Accredited Land Consultant (ALC). Keep in mind that the real estate broker or agent that is representing you will not charge for his or her services. The buyer’s agent receives a commission based on the percentage that has been negotiated by the seller and his agent for the sale of the property.
Research the property. Before making an offer on the land, you should get a land valuation and a Land Information Memorandum (LIM). These two reports are very important because they will help you determine the value of the land you want to purchase and whether or not you are making a wise investment. A land valuation is provided by a real estate appraiser. It is important to get an appraiser that is experienced in handling land appraisals and that has a good reputation for providing accurate and detailed reports. Since most experienced appraisers are licensed by the state they work in, you should be able to locate a list of licensed appraisers by contacting your state’s licensing board or real estate commission. You can also ask for recommendations from other commercial property owners. To obtain a Land Information Memorandum, you will need to contact the city council where the land is located. The LIM is different from an appraisal in that it includes any information related to the history of the land, how the land can be used and a legal description. Basically any information that the city council has recorded regarding the land will be included in the LIM. To obtain a LIM, you will need to contact the city council directly for directions on how to request a report. Some city councils will ask you to submit your request in writing or online. A Land Information Memorandum may cost up to $300 and you should make a copy of the report for your lender. An environmental assessment or audit done by an environmental consulting firm is also an important report to obtain prior to purchasing the land. Your lender will most likely require you to have the soil tested before they approve the loan, but this assessment will also keep you from purchasing a property that might have contaminated soil.
Sign a purchase contract. From the moment you decide to buy the land and make an offer to the seller to purchase the land, you will need to have all of the details of the agreement put into a standard land contract or a contract written by your attorney. Most states have pre-printed forms that your real estate agent will help you fill out when you make your offer. If these contract forms are not available, you should have a lawyer put together a written contract for you. In any case, you should have a third party with legal knowledge review the purchase contract before the closing.
- How to Law-How to Obtain a Land Information Memorandum
- Smart Business-Commercial Real Estate Land of Opportunity
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- Purdue University Cooperative Extension Service. "Zoning—What Does It Mean to Your Community?" Accessed Feb. 17, 2020.
Victoria Robles graduated from Kaplan University with a degree in Paralegal Studies in 2007. She also earned her associate degree in business from Champlain College in 2002. Robles is a former job coach with three years of experience in editing real estate marketing materials and writing resumes for job seekers at her local workforce center.