Buying or leasing any property – especially if it’s residential or commercial – requires a series of steps that can take time, preparation of documents and some understanding of the process. This means you need to be aware of the steps needed to secure the right approvals.
Expect the Process to Take Time
Finding the right commercial property can take longer than finding a home, as there are usually fewer properties on the market at any one given time. It’s best to give yourself time to conduct the necessary due diligence when locating the right property for your needs, and it’s very important that financing is part of any negotiation discussions and processes.
It can take anywhere from 30 to 45 days from acceptance of the offer by both parties to secure the right funding and get the paperwork in order.
Upon Acceptance of Your Offer
The initial priorities for due diligence upon acceptance of the offer would be to immediately engage building inspectors, the surveyor, and an environmental engineer.
If the property is in the major city centre, a “Property Information Disclosure” will be requested from the building standards department. This report typically indicates building and plumbing permit history and deficiencies, outstanding fire orders, heritage and zoning designations, outstanding landscaping, parking requirements and the presence of additional zoning requirements.
Documentation You’ll be Asked For
- Application Fee
- Copy of the offer to purchase/lease and related documents
- Current rent roll and copies of existing leases if applicable
- Personal net worth statement
- Certificate of incorporation
- Three years of financial statements from your corporation
- Verification of equity or down payment
- Estimate for the cost of insurance
- If the property is outside of the province in which you are incorporated, it will be necessary to extra-provincial registration of the corporation
- May require a personal guarantee (amount and duration to be negotiated)
- Establish an account with the funding financial institution
- If new construction, a detailed construction budget and contractor information will be required
- You may be asked for a business pro forma
While this may seem to be a long list of required documentation, it may not be representative of every unique situation, as your funding institution may require additional documents.
Upon Acceptance of Your Offer
Work with your commercial real estate broker to understand the loan-to-value options likely to be offered by commercial lenders during the process, as understanding this is based on the commercial properties you are looking at.
It’s highly recommended that you spend time understanding the debt service coverage ratio (DSCR), as well as the financial institution your mortgage is placed with, will require that there is sufficient net operating income to provide a surplus after paying the mortgage principal and interest.
Be Prepared is Important
If you enter the commercial purchase process unprepared, you may not be able to put together all the documents and requirements in time, which often results in requesting an extension to their conditions.
However, if you have prepared and understand the details, the commercial real estate, and the mortgage process, you will save yourself a lot of time and potentially money – so it’s wise to invest the time upfront to be prepared.