Questions to Ask When Buying Commercial Property
Questions for the broker, the seller, and your own advisors while you are under contract on a commercial building. Written for a first-time or small-scale buyer of retail, office, industrial, or mixed-use space, covering the rent roll, lease terms, building condition, taxes and insurance, and what the first year will actually cost.
The questions
Open any question for the note
Why is the seller selling, and how long has the property been listed?
Why ask it
A retirement, a partnership breakup, or a loan coming due tell you how much time pressure sits on the other side, which is your leverage. Long marketing time with no price cut usually means the asking price ignores something every other buyer already found.
Can I see the last three years of rent rolls and operating statements rather than a projection?
Why ask it
Offering memos are built on what the building could earn. Three years of actuals show turnover, months of vacancy, and expenses the projection smoothed away. Hesitation here, or an offer of only a partial year, is itself the answer.
Which figures in the offering memo are actual and which are estimated?
Why ask it
Market rent, management fees, and reserves are the three lines most often replaced with a favorable assumption. Ask the broker to mark each line as historical or projected, then rebuild the income yourself using only the historical ones.
What is occupancy today, and what was it two years ago?
Why ask it
A building leased up in the last six months is a different investment from one that has been full for a decade. Recent lease-up often means short terms, concessions, and a wave of expirations that will land on you rather than the seller.
Who are the tenants, when do their leases end, and how much of the rent comes from the largest one?
Why ask it
Concentration is the risk that sinks small commercial deals. If one tenant is half the income and their term ends in eighteen months, you are not buying a building, you are buying a bet on one renewal conversation.
Are the leases triple net, gross, or something in between, and who pays for what?
Why ask it
The same rent number means very different things depending on who covers taxes, insurance, and repairs. Read the actual documents rather than the summary, because mid-range leases often leave roof, structure, and parking with the owner while the summary just says net.
Which tenants are behind on rent, on a payment plan, or in default?
Why ask it
The rent roll shows contract rent, not collected rent. Ask for a delinquency report and for the deposit ledger. A tenant three months behind who is still listed at full rent inflates the income you are paying a multiple for.
What concessions were given to sign the current tenants: free rent, buildout allowances, reduced rates?
Why ask it
Concessions are how a seller makes rents look strong before a sale. If a tenant is in month four of nine months free, the cash flow you underwrote does not exist yet, and the same package will be expected at renewal.
What are the actual operating expenses for the past two years, line by line?
Why ask it
You are looking for the lines a seller runs light: management, snow and landscaping, repairs, and any reserve at all. An expense ratio noticeably below comparable buildings usually means work has been deferred rather than done cheaply.
What major systems have been replaced in the last ten years, and what is due next?
Why ask it
Roof, HVAC units, parking surface, and elevator are the four items that turn a good yield into a bad year. Ask for invoices and warranties, and price the ones with no paperwork as if they are at the end of their life.
Has a Phase I environmental site assessment ever been done, and what did it find?
Why ask it
Dry cleaners, gas stations, auto shops, and older industrial uses leave problems that transfer with the title. An old report is better than none, but any recognized condition in it means you want a current assessment before your inspection period closes.
What is the zoning, and is the current use conforming or grandfathered?
Why ask it
A legal nonconforming use can often continue but not be expanded, and in some places it lapses if the building sits empty long enough. That single distinction can decide whether your plan for the space is possible at all.
What will the tax bill be after the sale, not what the seller pays now?
Why ask it
In many places a sale triggers reassessment near the purchase price, so a long-held building can see taxes jump the first year you own it. Ask the assessor's office directly rather than accepting the current bill as your future cost.
What does insurance cost today, and has the carrier asked for anything before renewal?
Why ask it
Quotes obtained by the seller years ago are not what you will pay. Requests for roof work, wiring updates, or sprinkler additions are the useful part of the answer, because they are repairs you will be required to fund on the carrier's schedule.
Are there open code violations, unclosed permits, or pending special assessments?
Why ask it
Work done without a permit becomes your problem at the next inspection or the next sale, and an unclosed permit can block your own future one. Pull the municipal file yourself instead of relying on the seller's memory of what was finished.
How many parking spaces are there, and does that meet code for the uses I have in mind?
Why ask it
Parking ratios quietly limit what can go in the space. A building that qualifies for office use may fail the requirement for a restaurant or a clinic, which narrows your tenant pool for the whole time you own it.
Who manages the building now, what do they charge, and are they staying?
Why ask it
Seller-managed buildings often show no management expense at all, so you need to add the real cost before judging the return. If the current manager is leaving, ask what they were handling, since some of it will turn out to be uncompensated owner labor.
What competing space is being built or coming vacant nearby?
Why ask it
New supply resets asking rents whether or not your building has changed. A broker who works the submarket can name the projects and the tenants shopping right now, and one who cannot is not the person to rely on for your rent assumptions.
What will a lender require before financing this, and what do you expect it to appraise for?
Why ask it
Lender conditions surface issues the sale process hid: reserve requirements, environmental reports, tenant estoppels, personal guarantees. Ask early, because a gap between appraisal and contract price means you make up the difference in cash.
What would I need to spend in the first year before this building performs the way the listing describes?
Why ask it
This question forces the deferred items, the leasing commissions, and the buildout for vacant space into one number. Sellers and brokers rarely volunteer it, and it is usually the difference between the advertised return and your actual one.
If I needed to sell in three years, who would buy a building like this?
Why ask it
Specialized buildings and small-town locations can take a year or more to move. A clear answer naming the buyer type, whether a local owner-user, a small fund, or a tenant, tells you the exit exists. A vague one tells you your capital may be stuck.
If you were buying this yourself, what part of the deal would give you pause?
Why ask it
Asked once you have already shown you are a serious buyer, this often gets a real answer, because the broker would rather flag a concern now than lose the deal during inspection. Silence, or an insistence that there is nothing, tells you to lean harder on your own diligence.
Working through a commercial purchase
Practical guidance for the conversation itself
How to run diligence
Rebuild the income yourself
Take the seller's statements and reconstruct net operating income using only historical figures, then add the expenses the seller does not carry: real management, a replacement reserve, and the reassessed tax bill. Most bad small-commercial purchases come from accepting someone else's arithmetic rather than from a hidden defect.
Read every lease, not the abstract
Lease abstracts are prepared to sell buildings. The documents themselves hold the renewal options at fixed rents, the exclusivity clauses that block your next tenant, the co-tenancy conditions, and the obligations that stay with the owner. Give yourself enough inspection time to read them in full or to pay a lawyer to.
Get estoppel certificates signed
An estoppel is the tenant confirming in writing what they pay, when the term ends, what deposit they gave, and what the landlord still owes them. It is the only way to learn about a side agreement the seller forgot, and lenders generally require them anyway.
Line up inspections in parallel
Building inspection, roof, mechanical, environmental, survey, and title all take time, and each can produce a finding that changes your price. Order them in the first week of the inspection period rather than sequentially, so a late discovery does not arrive after your right to walk away has expired.
Where the money actually goes
- Reassessed property tax. A building held for twenty years may be taxed on a fraction of what you are paying for it, and the correction arrives on your watch.
- Leasing costs. Filling a vacant suite means broker commissions plus tenant improvement money, both paid before the first rent check clears.
- Deferred capital work. Roof, parking lot, and HVAC replacements are predictable from age alone, so put a date and a figure on each one during diligence.
- Management and your own time. If you plan to self-manage, still price the fee, because the day you stop wanting to take tenant calls is the day it becomes a real expense.
- Loan reserves and recourse. Lenders on small commercial deals commonly require escrows for taxes, insurance, and capital items, and often a personal guarantee, which changes your risk beyond the property itself.
What goes wrong
Underwriting the pro forma instead of the building
Market rent, full occupancy, and thin expenses can all be true eventually and none of them are true on closing day. Buy on what the building does now, and treat the upside as the reason to hold rather than the reason to pay more.
Letting the inspection period run out
The contingency period is the whole of your protection. Deposits go hard on a date, and a finding that arrives afterward is yours to pay for. Track the deadline yourself and ask for an extension in writing well before you need it.
Skipping environmental work on an older site
Contamination liability can attach to an owner regardless of who caused it, and it is one of the few problems large enough to exceed the value of the building. On any site with industrial, automotive, or dry-cleaning history, the assessment is not optional.
Buying a single-tenant building without asking about the tenant's business
With one tenant, occupancy is either one hundred percent or zero. Look at how long they have operated there, whether the location matters to them, whether the lease is guaranteed by a parent company, and what the space would need to suit anyone else.
Treating the broker as your advisor
The listing broker works for the seller, and even a buyer's broker is paid on closing. Their market knowledge is genuinely useful; their assurances are not diligence. Your own lawyer, inspector, and accountant are the ones with no stake in the deal happening.
A workable sequence
Before you make an offer
- 1Ask why the seller is selling, how long the property has been listed, and what the price history is.
- 2Request three years of operating statements and the current rent roll, and confirm which figures are actual.
- 3Check zoning and permitted uses against what you intend to do with the space.
- 4Get a rough tax reassessment estimate and an insurance quote at your likely purchase price.
During the inspection period
- 1Read every lease in full and send estoppel certificates to each tenant.
- 2Order building, roof, mechanical, and environmental inspections in the first week.
- 3Pull the municipal permit and violation file, and order title and survey.
- 4Reprice the deal using verified income, real expenses, and dated capital needs, then decide whether to renegotiate, proceed, or walk.