The Importance of Commercial Property Due Diligence

The Importance of Commercial Property Due Diligence

Boynton Beach, Florida, is one of the country's top 10 "up-and-coming small cities for financial prosperity." Thanks to its low unemployment rate, high gross domestic product (GDP) growth, and population boom, it earned fifth place on the list.

With those positive attributes, more people will likely want to move here.

So, why not take advantage of that population growth by buying commercial real estate in the city and renting it out? But before you do, you must understand the importance of commercial property due diligence.

We'll tell you why due diligence matters in commercial real estate transactions, so read on.

Determine Potential Profitability

Due diligence involves thoroughly investigating a property's location, physical condition, and financial aspects. It answers critical questions, including:

  • Is it ideally located and in a safe neighborhood?
  • Is it in good condition, or does it need significant repairs?
  • How much would property repairs, upgrades, and updates cost?
  • How tight is the rental competition in the area?
  • How much is the rental price of comparable properties nearby?

Knowing the answers to those questions can give you a clearer insight into potential commercial property values. It can also help establish which types of investment properties are most profitable.

Establish FRMVs

FRMV stands for "fair rental market value." It's an educated estimation of how much you can reasonably charge tenants based on factors like:

  • The property's location
  • The property's size and type
  • The property's facilities and amenities
  • The rental rates of comparable properties nearby

Since due diligence allows you to discover those factors, it can also help establish FRMVs for your properties. Doing so prevents you from charging too little or too much, which can lead to potential income losses.

Spot a Money Pit

According to surveyed real estate investors, plumbing, structural integrity, and roofs are some of the "biggest money pits" in investment properties.

But what exactly is a money pit, and why should you avoid it at all costs?

In real estate, a money pit is a property that costs its owners more than it's worth. In most cases, the property is in such poor condition that its owners must continuously spend money on repairs and maintenance.

Due diligence allows you to spot money pits since it includes thorough inspections of a property's condition. Such assessments help uncover hidden structural problems, code violations, and areas of improvement. Once you know these, you can determine whether a property is a money pit or has a high return potential.

Always Conduct Commercial Property Due Diligence

Without commercial property due diligence, you risk investing in money pits or unprofitable properties. So, never skip this step; it can make or break your finances.

PMI Expert PB can help you make sound investments, starting with our free rental analysis. With this, you can discover how much you can profit from rental properties. From there, you can rely on our full-service property management solutions, including marketing, tenant screening, rent collection, property maintenance, and more.

We're also a proud member of PMI, a national property management solutions provider that has been in business for over 20 years.

So, call us today for a consultation! We look forward to helping you maximize your rental income.