Buying Commercial Property in New York? Due Diligence Matters

Buying a building either as part of an investment, or to operate your business is often a good idea. It can make or save you money, but it can also be tricky.

This guide will help you check everything important before you buy.

Money Stuff to Check

Income and Costs

  • Ask to see how much money the building made and spent in the last 3 years
  • Look at all rental agreements, including:
    • How much tenants pay and when it goes up
    • When leases end
    • Who pays for improvements to the space
    • Extra charges for shared areas like lobbies and hallways
    • Special rights tenants have
  • See if tenants pay on time and have good credit
  • Figure out if the building will make enough money:
    • How much profit you'll make compared to what you paid
    • How much cash you'll get back each year
    • Whether the building makes enough money to pay its loans

Property Taxes

  • Check current property taxes and payment history
  • Find out if taxes might go up after you buy
  • See if you can get any tax breaks
  • Maybe talk to a special tax lawyer who can help lower your taxes

Building Inspections

Building Condition

  • Hire experts to check:
    • If the building is sturdy
    • Roof condition and warranty
    • Heating and cooling systems
    • Electrical systems
    • Plumbing
    • Fire safety equipment
    • Elevators (if any)
  • Look for repairs that haven't been done
  • Make sure the building is accessible for people with disabilities
  • Check parking areas

 

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Environmental Checks

  • Get a basic environmental check (called Phase I)
  • If problems are found, get a more detailed check (Phase II)
  • Look for:
    • Underground tanks that might leak
    • Harmful materials like asbestos
    • Lead paint
    • Radon gas
    • Mold or water damage
  • Make sure the building follows New York's environmental rules

Legal Checks

Property Ownership

  • Get a complete history of who owned the building
  • Check for:
    • Rights others have to use parts of the property
    • Rules about what you can and can't do with the property
    • Any money owed on the property
    • Rights of way (where people can walk or drive)
  • Get insurance that protects your ownership

Building Use Rules

  • Check what the building is allowed to be used for
  • Look for any possible changes to these rules
  • Check if the building has special permissions
  • Make sure it has proper certificates saying it's safe to use
  • Confirm it follows New York building codes
  • Check if you have rights to build up or expand

Following the Law

  • See if there have been any lawsuits about the property
  • Check for any building code violations
  • Make sure all licenses and permits are up to date
  • Confirm the building follows:
    • New York fire safety rules
    • New York energy rules
    • Local rules for that area

Location Check

Market Research

  • Look at the local area:
    • How many empty buildings are nearby
    • Whether rents are going up or down
    • If new buildings are being built nearby
  • Check out the competition
  • Research if the area is growing
  • Look at who lives and works in the area

Property Location Facts

  • Check how easy it is to get to the building
  • See how visible the building is from the street
  • Find out if it's in a flood zone
  • Look at what other businesses are nearby
  • Check area safety
  • See if any new roads or transit are planned nearby

Special New York Things to Know

Special NYC Rules (if in New York City)

  • Rules about checking building facades for safety
  • Rules about how much carbon the building can produce
  • Energy use reporting requirements
  • Yearly safety checks

Different Rules in Different Areas

  • How rules differ upstate versus downstate
  • Special economic zones that might save you money
  • Rules for historic buildings (if applicable)
  • Local community input requirements

Experts You Should Hire

Important Advisors

  • A lawyer who knows about New York business properties
  • An accountant who understands business real estate
  • A building inspector or engineer
  • An environmental expert
  • Someone to help find the best mortgage
  • An insurance agent who knows New York rules
  • A property management expert

Money and Loans

Mortgage Details

  • Compare different loan options
  • Make sure the building makes enough to cover loan payments
  • Check for fees if you pay off the loan early
  • Look at existing loans you might take over
  • See if you qualify for small business loans
  • Research special New York State loan programs

Insurance Needs

  • Property insurance
  • Liability insurance (if someone gets hurt)
  • Flood insurance (if needed)
  • Environmental insurance
  • Insurance for lost income if the building can't be used
  • Special New York insurance requirements

Purchase Agreement Protection

Important Contract Points

  • Enough time to inspect everything
  • Ways to cancel the deal if:
    • You can't get a loan
    • Environmental problems are found
    • The building can't be used how you want
    • There are ownership problems
  • Protection for your deposit money
  • Requirements for the seller to tell you about problems
  • Clear list of what's included in the sale
  • Written promises from the seller about the property's condition

Wrap-Up

Buying a business building in New York takes a lot of checking. This list gives you the main things to look at, but each building will have its own special challenges and opportunities. Getting a team of experts who know New York's business real estate is really important.

By carefully checking everything on this list, you can reduce your risks and make a smart decision about buying a building that fits your needs and budget.

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