There will always be risks involved when purchasing a piece of investment property. However, the goal is to minimize these risks as much as possible. The following are several potential sale contract pitfalls you may want to avoid.
It is critical that you find out if there are any defects in title before you sign on the dotted line. Since property is recorded in the form of a deed, research the public record system for the deeds to your potential real estate investment property. Sometimes, deeds are not recorded and sometimes people sell or transfer partial interests in property. It is more common than not those easements are given to cross over or use property that may or may not be of record. Additionally, a judgment against a person can be recorded and become a lien against any real property that the person owns, even without their consent. All of these issues can become a lien against title. It is better to know what you are purchasing beforehand, than to find out ten minutes before signing or even after signing the sale contract.
In the same sense, your potential investment may have a mechanics lien on it. A mechanics lien is a statutory lien that contractors, laborers, etc… may place on a property that they have performed work on. Ultimately, a mechanics lien could be used to foreclose a property.
Commercial loans, oftentimes, will require that a business maintain a certain net equity. Also, there may be pre-payment penalties, which are common on real property loans. Read the fine print and ask the appropriate questions. Lenders for large, commercial real estate deals require that there legal fees and costs be paid by the borrower(s).
For many commercial real estate investors, zoning issues can become a major sale contract pitfall. It is imperative that you make sure that not only is the relevant property zoned, but also that the zoning of nearby and adjacent properties is correct. Issues can arise down the road if government agencies or neighbors try to change the zoning on your property to limit your use of it. So, know your zone.
If you are an investor or commercial broker, then you know that changes in property values and other market fluctuations can have a profound effect on your investments. When rents go up and down and tenancy rates increase and decrease, these market fluctuations will have an impact on your property. That is why it is important to figure out when you go to sell or lease your property what the current market values are and that the property is priced correctly.
Finally, probably one of the biggest potential concerns when owning commercial property are hazardous wastes or environmental clean up problems. It is the property’s owner who is responsible for fixing any hazardous waste or environmental problems, even if the current property owner did not cause them. Also, if you are found to be in the chain of title to a contaminated property, you are then potentially responsible for paying for its clean up.