Broken down into seven clear steps, learn how to buy a commercial property with our reference guide.

Thinking about buying commercial real estate? Whether you’re eyeing an office building, a retail shop, or an industrial warehouse, making the jump into commercial property is a big move.

And it can also be a smart one.

This guide will walk you through the nuts and bolts of how to buy commercial real estate, making sure you’re ready if and when you decide to make that leap. From why it’s worth considering to the steps involved, we’ve got you covered.

Understanding Commercial Real Estate Properties

Let’s start with the basics. Commercial real estate, or CRE, is all about property used for business purposes. We’re talking offices, retail spaces, warehouses, apartment buildings — the works.

Why go for commercial real estate? For starters, it’s about the returns. Commercial properties generally offer higher risk-adjusted returns than residential real estate. But there’s a catch — it also requires more homework. Understanding the market, finding the right property, and getting the best financing in place are just the beginning.

Net Operating Income (NOI) is the foundational metric for CRE valuation, calculated as Gross Operating Income minus Operating Expenses—excluding debt service. Unlike residential properties valued on comparable sales, commercial assets are priced based on the income they produce.

Property valuation in commercial real estate centers on the Capitalization Rate (Cap Rate), which measures unleveraged return by dividing Net Operating Income by the purchase price. A property generating $100,000 NOI purchased for $1,250,000 represents an 8% Cap Rate.

Unlike buying a house, investing in CRE can offer more rental income and longer lease contracts. Sounds good, right? Plus, it’s a chance to diversify your investment portfolio outside of the usual stocks and bonds (and their volatility).

CRE comes in many different flavors. Let’s take a look at some of the more common ones you may be considering.

Retail Properties

Shops and malls where merchants sell their goods. This includes everything from that little hole-in-the-wall diner a couple blocks away to something as large as the Mall of America.

→ You can explore current retail properties for sale.

Office Buildings

Spaces where businesses run their operations. This includes office skyscrapers in Midtown Manhattan to smaller, suburban medical office buildings. Although the office sector has had plenty of challenges (and many of them aren’t going away anytime soon), there are still great opportunities to be found in the sector.

→ See active office properties for sale across different markets.

Industrial Facilities

Warehouses, distribution centers, and factories where goods are made or stored. The growth of e-commerce has created more and more sustained demand for this asset type, making them potentially excellent investments.

→ Browse available industrial properties for sale to compare locations and pricing

Multifamily Complexes

Apartment blocks offering rental income from multiple tenants. While multifamily markets experienced cap rate expansion and rent growth moderation in recent years, apartment buildings remain one of the lower-risk CRE asset classes for portfolio allocation.

→ Review current multifamily properties for sale by market.

Self-Storage Facilities

Self-storage is a familiar asset class to most people—and that universal familiarity reflects consistent demand. Self-storage properties can be lucrative investment opportunities, but location and market are everything.

→ You can find active self-storage properties for sale.

Hotels

You know what hotels are. What you might not know is that many hotel operators don’t own the real estate they occupy. These properties can be great investment opportunities, but you’ll still need to pay close attention to the hospitality industry in your area to manage your risk.

→ Explore current hotel properties for sale across U.S. markets.

Others

There are plenty of other types of commercial real estate you can invest in that aren’t mentioned here. These range from high-tech data centers to churches, schools, and more.

→ Browse all available commercial real estate for sale.

The Commercial Real Estate Buying Process: Step by Step

Buying commercial real estate isn’t just a transaction; it’s a strategic move towards your financial future. Whether you’re eyeing office, multifamily, retail, or something else, understanding the steps can make all the difference.

Keep reading to learn how to buy a commercial property.

Step 1. Evaluating Your Investment Goals

Start with clarity. What’s your investment thesis? Are you prioritizing current cash flow, long-term appreciation, or total return? Each goal might steer you towards different property types and locations.

Prime downtown locations historically offer stronger appreciation potential, while a suburban multifamily asset may deliver more consistent cash-on-cash returns.

Step 2. Assembling Your CRE Team

It takes a village. Or at least a team of savvy professionals. A commercial real estate agent knows the market. Lawyers keep you in the clear, and accountants make sure the numbers make sense. A property manager will keep your future asset operating well.

Tip: Choose folks who understand your goals and have the know-how and track record to back it up.

Step 3. Finding the Right Commercial Property

Now the hunt begins. Use online platforms, lean on your network, and consider a broker if you’re feeling overwhelmed. Look beyond the facade. Consider the property’s location, condition, zoning laws, and local market trends. It’s about finding a property that ticks all your boxes.

Step 4. Financing Your Commercial Real Estate Purchase

Money talks. You’ve got options like traditional loans, SBA loans, and private lenders, plus a multitude of other loan types for certain asset types, like multifamily.

Each has its quirks. Traditional loans are, well, traditional. SBA loans can be friendlier on terms, and private lenders offer flexibility with a price. Gear up by polishing your credit score, saving for a down payment, and gathering your financial docs. Lenders love a well-prepared borrower.

But which lender? This part is where many turn to help — and it’s also where help can make a massive difference to the bottom line of your investment.

There are thousands of banks, credit unions, private lenders, debt funds, and more lender types out there, and some likely have an appetite for financing your investment. Many will likely not.

How can you know where you’ll get the best financing terms? While local banks and credit unions are convenient, they rarely offer the most competitive terms for commercial acquisitions.

Instead, use our platform to shop your loan to thousands of lenders, get the best of the best terms, and execute. (Just complete the form a bit further down to get started, effortlessly.)

Step 5. Due Diligence and Property Evaluation

Time to get serious. A thorough property inspection is non-negotiable. Review financials thoroughly—rent rolls, trailing 12-month (T-12) operating statements, tenant estoppels, and lease abstracts require careful scrutiny. This step can save you from a bad deal or confirm a great investment.

Step 6. Making an Offer and Negotiating

Found your gem? Make your move.

Structure your Letter of Intent (LOI) to reflect fair market value while protecting your negotiating position. Negotiation is an art. Be ready to flex but know your limits. The goal is a win-win, but you also want to secure the best possible terms for your investment.

Step 7. Closing the Deal

Crossing the finish line requires navigating the closing process. It’s paperwork heavy — trees will make the ultimate sacrifice for this — and it involves finalizing your financing, completing any remaining inspections, and possibly making adjustments based on those inspections.

Each step of this journey requires careful consideration and preparation. By understanding each phase, from evaluating your investment goals to closing the deal, you’re better positioned to make informed decisions that align with your financial objectives.

Remember, in the world of commercial real estate, knowledge isn’t just power — it’s profit.

Your Financing Options in Detail

We have an extensive library of pages on our website with greater detail on all of these loans. While I’ll surface some of the main pros and cons of each here, you’ll find links in each section to more information.

  1. Traditional or Permanent Loans

Pros: Widely available, predictable rates and terms.

Cons: Strict qualifications, significant down payments.

Deep Dive: Think banks and credit unions. Solid option if you’ve got a strong credit score and cash for a down payment. These lenders favor stabilized assets with strong debt service coverage ratios (DSCR), so prepare comprehensive financials.

  1. SBA Loans

Pros: Lower down payments, favorable terms.

Cons: Caps on loan amounts, longer processing times.

Deep Dive: The Small Business Administration backs these loans, making them less risky for lenders, meaning you get better terms. Great for owner-occupied real estate — they aren’t for investment assets. Just be ready for some paperwork.

  1. Private Lenders

Pros: Flexibility, quicker access to funds.

Cons: Higher interest rates, shorter repayment terms.

Deep Dive: Ideal when you need to move fast or for projects that might not tick all the boxes for traditional lenders. The price for speed and flexibility is higher costs.

  1. Multifamily Loans: Fannie Mae, Freddie Mac, HUD

Pros: Competitive rates, long-term financing.

Cons: Strict eligibility, longer closing times.

Deep Dive: These aren’t generally for your quick flips. Designed for stable, income-generating multifamily properties. If you’re playing the long game, these can be golden. There are many different types of Fannie, Freddie, and HUD loans, drilling it down even further. HUD loans typically offer the most advantageous terms, but the timelines are often quite a bit longer than for a Fannie or Freddie loan.

  1. CMBS Loans

Pros: Access to large amounts of capital, fixed interest rates, non-recourse.

Cons: Less flexibility, prepayment penalties, complex underwriting process.

Deep Dive: Commercial mortgage-backed securities (CMBS) loans are pooled and sold on the secondary market, providing investors with liquidity and borrowers with access to capital. Ideal for investors looking for long-term, fixed-rate financing for commercial properties, but be prepared for a detailed and sometimes lengthy underwriting process. The trade-off for securing large sums at competitive rates is a loss of flexibility, especially when it comes to prepayment or refinancing options.

  1. Connecting Borrowers to Lenders

Our platform simplifies this maze. We match your project with lenders eager to fund deals like yours. Whether you’re eyeing traditional bank loans, hunting down the best SBA terms, or exploring private lending, we’re here to connect the dots.

Common Pitfalls to Avoid

The road to commercial real estate success is littered with potential missteps. One of the best ways to avoid falling into any of these traps is to stay focused and be thorough with each step along your investment journey. Below, you’ll find a handful of common mistakes many first-time investors make (and how to avoid them).

  1. Skipping Due Diligence

The Pitfall: Underestimating the importance of thorough property and financial vetting.

Avoidance Strategy: Always conduct a detailed inspection and financial analysis. No shortcuts, here. You must do the work.

  1. Overlooking Financing Terms

The Pitfall: Getting caught off-guard by unfavorable loan terms or hidden fees.

Avoidance Strategy: Read the fine print. Understand every term and condition of your financing. If you don’t understand something, ask until you do. Enlist Janover to find the right loan for you and get the terms clearly explained.

  1. Misjudging Market Trends

The Pitfall: Investing based on outdated or incorrect market data.

Avoidance Strategy: Stay informed. Use up-to-date, reliable market insights to guide your decisions. Don’t rely on a seller’s (or their brokerage’s) assurances. While you can’t always perfectly predict the market, you can and should use third-party market data from multiple trusted sources.

  1. Underestimating Costs

The Pitfall: Overlooking potential costs, leading to budget overruns. This is an especially big deal for any kind of value-add investment strategy.

Avoidance Strategy: Plan for the unexpected. Have a significant buffer for unforeseen expenses.

  1. Ignoring Exit Strategies

The Pitfall: Failing to plan for the endgame.

Avoidance Strategy: Always have defined exit strategies, whether that’s a stabilized sale, refinance and hold, 1031 exchange, or recapitalization.

By navigating these financing options carefully and avoiding common pitfalls, you’re setting yourself up for a more successful and profitable investment journey in commercial real estate. Remember, thorough preparation and due diligence are your best allies in this complex market.

The Future of Commercial Real Estate Investing

One thing to note about CRE: It’s always changing. Yesterday’s trends are often squarely left in the past, and by keeping your eyes on what’s happening, you’ll be better able to prepare yourself — and your investments — for what’s coming in the future.

For one, sustainable building features are a big topic, and likely will continue to grow in importance. These offer advantages both for you as an investor and for tenants looking to cut costs, create more sustainable businesses, or both.

There are others I could name — remote work, for example, or proptech innovations — but these will potentially shift to some extent in the future. The key is: Do your homework, and keep doing your homework even after you’ve closed on your acquisition.

Conclusion

Congrats, you’ve made it to the end. Does that mean you’re ready to buy your first (or next) commercial property?

Not exactly.

Most of the steps above have an ongoing, ever-present aspect to them. You won’t just research financing terms once, for example, nor will you stop analyzing the market your acquisition (or potential purchase) is in.

Still, you’re ready to start the journey. You’ll find more questions as you move forward, and just remember: This is why you should work with a great team, especially on your first several acquisitions.

Remember: We’re on your team. Our advisors will leverage our financing platform to secure the best terms available to you, regardless of if you’re buying a 6-unit apartment complex in Anchorage or a massive shopping mall in Miami.

Disclaimer: The information presented in this article is for general educational purposes only and does not constitute financial, legal, or tax advice. Realmo.com assumes no responsibility for errors, omissions, or actions taken based on this content. This material should not be relied upon as a substitute for a consultation with professional advisors. Please note that laws and regulations may vary significantly by state