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5 Red Flags for Scoping Commercial Properties

What to Watch For When Scoping Commercial Properties  

Proactive preventative maintenance is essential when it comes to commercial property investment. When reviewing commercial properties for investment, look out for these 5 red flags.  

Look At Our Guide: The Difference Between Commercial and Residential Real Estate Appraisals 

The Location of Your Commercial Property

Where is your property located? When assessing commercial properties, consider the sale opportunity within the area. Is the neighborhood on the rise? Is the neighborhood declining?  

An excellent strategy to work your way through the location confusion is through outreach to businesses in the area. Connect with real estate data with a trusted source and see if the community is experiencing growth. We recommend using Titan Real Estate for all your data needs. You don’t want to lose your investment in a declining area of town.  

Be sure to also look at the property’s ownership history. Is this a property doomed to fail? Examine county records and overview historical sales. Find out why ownership changed and how often.  

Commercial Property Roof Conditions 

Pay attention to the roof condition of the buildings you’re interested in. Roofs are a considerable expense for commercial properties. They can cost from anywhere between $11.50 to $14.50 per square foot. This, however, doesn’t factor in labor costs.

Depending on the date of the building, the commercial property may have phenolic foam insulation on the roof. Phenolic foam insulation was a short-lived, energy-efficient solution used in the early 1980s. Though seemingly cost-effective, the insulation resulted in one of the largest class-action settlements in history.  

When the compound gets wet, it breaks down and becomes highly acidic. This acidic solution the metal deck, ranging from surface rust to large holes. Phenolic foam insulation usually requires an entire phenolic foam remediation project to extensively document and repair any unseen damage.  

Look At Our Guide: How COVID-19 Has Affected Commercial Construction  

Water Damage to a Commercial Property 

Water damage prevents commercial properties from conducting business. Not every property owner maintains the same diligence in making repairs. That’s why it’s important to examine the maintenance history to determine if the commercial property is worth investing in.  

The common causes of water damage to commercial property are the following:  

  • Damaged windows 
  • Damaged pipes  
  • Poor drainage systems  
  • Roof leaks  
  • HVAC wear-and-tear  
  • Sewer clogs 
  • Sprinkler system leaks  

Water damage in commercial buildings is expensive to repair. If there’s any evidence of water damage in an investment, it can be a sign that costly repairs are needed, from a new plumbing system to roof repair.  

Foundation Cracks in a Commercial Property 

If the commercial property has uneven floors or cracks on the exterior walls, there could be foundational or structural issues. Foundational damage can cause disrupted business operations and a loss of revenue.  

Look into maintenance records and repairs to see if cracks were recently paved over or suspiciously covered.

Improper Commercial Property Drainage  

Ponding occurs when water sits on the roof because it doesn’t have a proper drainage system in place or it becomes blocked. For this reason, it can occur on well-structured roofs. Be aware that flat roofs commonly hold water after storms. Clearing drains and maintaining the drainage system are crucial to preventing ponding.  

If the drains appear old or incomplete, investigate the roof condition. Identify if there is any water damage inside the building as well.  

Look At Our Guide: The Future of Commercial Real Estate Appraisal in Austin, TX 

Poor or Amateur Repairs on a Commercial Property  

There’s always a chance of an owner not maintaining the commercial property correctly. Amateur repairs are a leading indicator of more repair expenses toc ome. If a property wasn’t well-maintained or there isn’t maintenance on-site, this may tell you that there will be expensive structural and cosmetic repairs to redo.   

Ask for work permits and city inspection documentation to prove that everything is up-to-code and running correctly. Never trust word-of-mouth when it comes to examining the maintenance work conducted on commercial investment properties.

Contact Titan When Considering a Commercial Investment  

Titan Real Estate takes a full-service approach by bringing together appraisal, brokerage, and property management for all commercial real estate. Contact Titan today to get started on your commercial investment.