Buying new commercial properties can be expensive, especially in high-traffic areas with many new developments. You want the appeal of a new and shiny building without high costs. As it turns out, an older commercial building has its own charm that makes it worth looking into.
If you are interested in an older building, you should remember that it won’t be the same as other commercial properties you’ve seen. It could lack some newer technologies or not be up to date with current building codes. There may also be some unsavory business in its history.
Here are eight things you should learn about any older commercial real estate you’re interested in.
1. The Building’s Overall Condition
You should always pay for a commercial property inspection for any building you’re interested in. It’s vital for older buildings, as there could be several wiring or structural issues that will need repairs.
Some structural issues your building may have include concrete decay, HVAC system neglect, and rusted plumbing.
Concrete decay is a natural occurrence for older buildings. You’ll need to replace any that has faced damage, whether it’s due to aging, exposure, or steel support corrosion.
HVAC systems require continuous maintenance to avoid any problems. Older plumbing can result in leaks or inefficient fixtures.
2. Building Classification
Commercial buildings are typically classified based on price, quality, and amenities. The three categories are class A, B, and C. One way to learn more about your potential purchase in advance is to see what class it falls under.
Class A properties are the newest options of the highest quality. These are less than ten years old, have increased traffic counts, and often have superior amenities. The only problem is that they tend to cost the most.
Class B properties aren’t as new or shiny, but they’re well-maintained. They’re usually under 20 years old and are the middle option.
Class C properties are even older. These are vintage and often need at least some repairs upon purchase.
3. Cost of Repairs
Assuming that the building you’re interested in does have some problem areas, you need to consider the cost of repairs. This may require extensive wiring work or even structural repairs. Even if you get a good deal on the building, you could spend a lot more just to make it meet newer building codes.
For example, an older building may need a roof replacement. A new roof can cost you anywhere from $8 to $10 per square foot for materials and labor. You can visit sites like hproofingpro.com to get a better estimate.
4. How the Structure Affects Your Business
Another consideration is how the existing structural elements may affect your business.
Brick and concrete walls can impede wireless signals, like Wi-Fi and your cell phone data. If your organization relies heavily on connectivity and high-speed Wi-Fi, then that may be a problem.
Another issue with older buildings is that they may be more difficult to renovate. One example is if you bought a building without an elevator but found out later that you can’t install one.
5. Historic Building Tax Credits
Smart investors can capitalize on older buildings with the Historic Tax Credit. This tax credit was created to help finance the rehabilitation of historic buildings. You may qualify for up to 20% for qualified expenditures, such as roof repairs.
To receive the tax credit, you must complete a three-part Historic Preservation Certification Application. The building must also require substantial improvements, common with much older buildings. Those changes should not significantly affect any distinctive materials or features of the building.
6. Effect of Depreciation on Costs
Tax benefits also exist if your building has depreciated in a way you can’t improve. The two most common ways to depreciate an asset are through functional and economic obsolescence.
Functional obsolescence is a reduction in something’s value due to an outdated design.
For example, a pre-war building might not have an elevator and does not have the structural integrity to retrofit one. This lack of accessibility could hurt your competitiveness, which allows you to request a tax benefit.
Economic obsolescence is the loss of value caused by outside elements, such as a changing neighborhood or zoning laws.
7. It May Be Part of Downtown Revitalization Efforts
There’s a chance that an old commercial building is a part of your community’s downtown revitalization efforts. These are attractive properties that can help contribute to local community life. They’re also a good investment, even if the revitalization efforts are in their beginning stages.
Many local, state, and federal programs are available if you purchase a historic building. Your local community may offer low-interest loans and financial incentives to entice new investors.
8. Location of the Commerical Building
As with any commercial building purchase, you want to look at its surrounding area. Is this an area that has seen recent growth, or is it surrounded by other abandoned buildings? What demographic will you expect to see, and does it benefit your business?
It may be worth investing in an older building if it stands out in a good way. Historic buildings are always a good draw for new customers. However, you don’t want to put hundreds of thousands of dollars into a property that isn’t going to generate the profit you need.
Preparing Your Investment
An older commercial building is a great investment opportunity with a lot of risk and reward. On the one hand, you get something unique that has the potential to draw in new clients and customers. However, you also need to remember that older buildings may require a lot of maintenance and repair work before you can move into them.
Check out our other articles to learn more about business and investments.