Sannhet Realty

1. What exactly is Commercial Real Estate?

"Commercial Real Estate" is any dealing with real property in a business context. It could involve leasing out office space, owning an apartment complex, or selling real property along with and as part of the sale of a business. It could be industrial or agricultural property, residential properties like apartment complexes or rental houses being held for business or income-producing purposes. It can even involve working with the government. Unless the property is a residence where the homeowner is living, you are probably dealing with commercial real estate.

2. Are there really that many differences between a commercial real estate deal and buying a home?

While many of the concepts are the same, there can be huge differences between commercial and residential real estate.

The risk and potential liability exposure that you face on a commercial real estate deal can be much greater than when you buy a home. Concerning resale, depending on the nature of the business there before you, commercial property may have all kinds of liens and title problems not typically found with residential property. There may be greater concerns about hazardous materials or zoning issues. And location for your business needs will always come into consideration..

3. How do I find out if I am getting good title?

Depending on your state, lawyers may specialize in researching public records to determine the status of title to property. Which the lawyer would issue opinions or reports as to the condition to title.

Other states, the job of researching title to property is done by title insurance companies. These companies track public records and other resources to develop extensive databases on title to real property. They're able to prepare title reports on property that are used to determine the status of title on real property transactions, and that are used as a basis for issuing title insurance.

4. What is a preliminary title report and how much attention should I pay to it?

A preliminary title report is a document prepared on real property once an escrow is opened, but prior to closing. It provides all kinds of information about the property that is essential for a buyer to see, such as how title is currently held and what kind of exceptions to title are currently on record (for example, liens and encumbrances).

It is extremely important for a buyer to carefully review a preliminary title report immediately and to take appropriate action if there are any unacceptable exceptions to title.

5. Does it make any difference how I take title to commercial real property?

If you take title as an individual, you may be exposing yourself to potential liability exposure that you might want to try to avoid or at least minimize. If you take title through a business corporation, this could drastically affect your tax standpoint point. Sometimes, there may be other alternatives such as forming a limited liability company that you would own and control, and in turn, could lease the property to your business entity.

There are several other types of ownership to consider, such as joint ownership, community property, and tenants in common. Each type of ownership has a different implication on the title of the property.

It would be a good idea to seek professional advice, including your lawyer and CPA, to assist you in making a smart decision.

6. If I am buying real property for my business, do I need to get an environmental site assessment?

There are certain situations where it only makes sense to have one done (such as when you're buying a service station or a manufacturing business)., Though, the chance of there being any problem may seem remote, you're probably doing yourself a disservice if you don't get one, as any problem that arises could result in catastrophic liability exposure for you even if you didn't cause the problem.

7. What is a "1031 exchange"?

A "1031 exchange" refers to a method of deferring tax on the sale of an interest in real property allowed under section 1031 of the Internal Revenue Code. It allows a seller to defer tax on a gain that would otherwise be realized on a sale of property if the proceeds from the sale were reinvested in like-kind property. It's quite common for a 1031 exchange to be involved in some manner in a commercial real estate transaction.

Note: There is a time constraint associated with a 1031 exchange.

It is always advisable to have competent legal counsel involved when dealing with a 1031 exchange.