Learning Services Contracts In Commercial Property Investing

Understanding service contracts before investing in commercial real estate means starting with service contracts; pretty much all Dallas real estate brokers can assist you with this process, briefly explained below.

Review carefully any and all service contracts in effect to make sure that they are cancelable with 30 or 60 days’ notice.  Make special note of any that is self-renewing for long terms such as one year or longer.  If you come across any of these types of agreements make sure that the seller understands that he will be responsible for any costs incurred for early termination or be prepared to live with them for the duration of the remaining term.

Next, you need to address certain issues that you believe will impact the building from a physical, material or financial perspective that you discover with the third party investigative reports.  You want to determine early on which items are going to be “deal breakers” and which ones you can negotiate on.  Either way it’s important to figure them out as soon as possible; if possible, bring them up while negotiating the purchase and sale agreement (“PSA”) and make sure that the solutions to any issues negotiated are incorporated into the PSA.

If that isn’t possible or issues or problems are discovered later in the due diligence process, make sure you’re aware of the costs involved and how it will impact the financial analysis and be prepared to confront the seller properly “armed” with the right information; estimates for repair or replacement, etc., as applicable, so you can legitimately ask for a discount. Finally, make sure that all permits required for the operation of the property i.e. elevators (annual and five year load test).  Taking these steps will assure smoother investment transactions which Dallas real estate brokerages could assist with if needed.