When buying a commercial property, making an offer is only the beginning. The true strength of your investment lies in what happens next: due diligence. This is your opportunity to verify that the property matches your expectations—financially, legally, physically, and operationally—before moving forward with the purchase.
At Annie Scott Realty Group LLC, I guide clients through each step of the due diligence process to help avoid costly surprises and ensure every deal aligns with their long-term goals. Here’s what that process involves and why it matters.
1. Title and Legal Review
Why it matters: You want to confirm clear ownership and identify any legal risks tied to the property.
What to review:
- Title report: Ensure there are no liens, encumbrances, or easements that limit use.
- Survey: Confirm property boundaries and access points.
- Zoning compliance: Verify that your intended use is permitted.
- Permits & certificates: Check for current COs (Certificates of Occupancy) and business use compliance.
- Environmental reports: Especially important for industrial or older properties (Phase I and II ESA).
Pro tip: Work with a commercial real estate attorney to review all legal documents thoroughly.
2. Financial and Lease Audit
Why it matters: You’re buying a stream of income, not just a building. You need to verify its stability and accuracy.
What to review:
- Rent roll: Confirm tenant names, lease start/end dates, rates, and deposits.
- Leases: Analyze lease terms (escalations, renewal options, NNN vs gross).
- Operating statements: Look at the last 2–3 years of income and expenses.
- CAM reconciliations: Ensure tenants are paying their fair share of shared expenses.
- Outstanding obligations: Check for unpaid rents, disputes, or major upcoming capital costs.
Pro tip: Hire a CPA or commercial real estate advisor to interpret financials clearly and assess performance.
3. Physical Property Inspection
Why it matters: Structural issues, deferred maintenance, or outdated systems can affect value and future costs.
What to inspect:
- Roof, HVAC, plumbing, electrical systems
- Parking lots, landscaping, signage
- ADA compliance and safety features
- Pest and mold inspections, if warranted
Pro tip: Use a licensed commercial building inspector with experience in the specific property type you’re buying.
4. Market and Location Analysis
Why it matters: The property may be sound, but the area might not align with your investment goals.
What to evaluate:
- Demographics: Population trends, income levels, workforce availability
- Traffic counts & visibility: Crucial for retail or service-based assets
- Nearby competition: Especially for medical, hospitality, or multifamily
- Future development: New zoning, roadwork, or nearby projects can affect value
Pro tip: Study local planning documents and talk with municipal officials to identify risks and opportunities.
5. Lender and Insurance Review
Why it matters: Financing and insurance costs can impact your ROI—and both require accurate underwriting.
What to assess:
- Loan terms: rates, amortization, fees, DSCR requirements
- Appraisal alignment with purchase price
- Insurance premiums and risk classification
- Required property coverage: liability, flood, loss of income, etc.
Pro tip: Begin working with your lender and insurance agent during the due diligence window to avoid delays.
6. Exit Strategy and Resale Potential
Why it matters: Your investment strategy should always consider how and when you’ll exit.
What to ask:
- How long is the typical lease length?
- Will the property require capital improvements in 5–10 years?
- How competitive is the asset class in this submarket?
- Can the property be repositioned or repurposed in the future?
Pro tip: Align your business plan with the property’s actual capabilities—not just its current condition.
Final Thoughts
Due diligence isn’t about being skeptical—it’s about being smart. It’s your chance to validate the facts, clarify expectations, and uncover potential challenges before they become problems.
At Annie Scott Realty Group LLC, I partner with commercial buyers across Indiana to make sure every property is thoroughly vetted and every step is confidently navigated. From initial analysis to closing day, I bring the tools, relationships, and insight needed to secure investments that perform.
Thinking of buying a commercial property? Let’s talk before you go under contract. Due diligence starts with having the right partner by your side.
Photo Credit: Luxury Presence
Sources:
- National Association of Realtors – Commercial Due Diligence Guide
- CCIM Institute – Risk Management for Commercial Investors
- Indiana Commercial Board of Realtors
- ULI – Due Diligence Essentials for CRE
