confirm the actual property lines and that you’re going to receive the property you think you’re supposed to. If your property encroaches onto a neighboring lot, even by just a tiny bit, it could introduce serious legal complications down the line. 9 DOES THE PROPERTY HAVE ANY ENVIRONMENTAL ISSUES? To make sure there are no environmental problems that will need to be remediated—which can be a very costly and lengthy process— have a Phase I environmental assessment done. If that doesn’t uncover any issues, you’re in the clear. If it indicates the presence of potential issues, you’ll need a Phase II environmental assessment, which is an in-depth environmental study that closely analyzes the property’s soil, water, and air. If major contamination is found, you’ll need to have a serious conversation with the seller about liability issues and remediation. This could give you significant leverage in the negotiation—the kind of leverage that can get contingencies removed from a contract or lead to a huge price reduction.
Additionally, the terms of your ground lease are extremely important—make sure you comb through the lease carefully to find out if it’s renewable and what kind of rent increases are allowed. WHAT IS THE DEVELOPER’S TRACK RECORD? Don’t underestimate the 5 importance of the developer to a project’s overall profitability. Newer developers can tank a project, even if the property is in a prime location, simply through mistakes of inexperience. Look into the agent’s experience with previous developments in the same sector. If it’s thin or spotty, be careful in your analysis. IS YOUR INTENDED USE ALLOWED UNDER ZONING RULES? Zoning is as important as location 6 in any analysis of a commercial acquisition. Determine, with the assistance of your broker, whether zoning rules allow for your intended use. If not, this complicates your
purchase. You could put in an offer that’s contingent on receiving a variance or a rezoning, but you can’t count on receiving either. And the variance or rezoning application processes can be long and complicated. 7 IS THE TITLE FREE AND CLEAR? When you’re doing your due diligence, make sure you receive a full title report. This report will detail any liens, claims, restrictions, covenants, or other encumbrances that could complicate your purchase. You’ll want a full Ownership and Encumbrance report before you make your offer.
8 WHAT ARE THE EXACT PROPERTY LINES?
Getting a property survey is pretty standard, whether you’re selling a home or buying an office building. You’d be surprised how many times an actual survey disagrees with the property lines as described. Make sure the seller has a survey done (you may have to request one) to
Luke Babich is the co-founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers, and investors make smarter
financial decisions. Babich is a licensed real estate agent in Missouri, and his research and insights have been featured on BiggerPockets, Inman, the LA Times, and other media. He received a bachelor’s degree with honors in political science from Stanford University.
8 :: INVESTOR REVIEW :: NOV-DEC 2022
Made with FlippingBook Online newsletter