CRE is in a turbulent stretch of rising interest rates and market uncertainty. If you are considering investing during this unpredictable time, you need a structured commercial real estate acquisition process to reduce risk and stay compliant with legal and regulatory requirements.
This guide breaks down the entire CRE buying process/acquisition lifecycle— from setting your investment goals to closing the deal.
You will learn how to buy commercial property in a prudent, focused, and informed manner so that you can minimize risks and position your investment for long-term success.
Step 1: Define your investment goals and property criteria.
During this phase, you will need to clarify your financial objectives and identify which types of CRE assets match your risk tolerance and long-term plans. Here are the first few preliminary steps to buy commercial property:
1. Establish your investment objectives.
Ask yourself:
- Are you aiming for steady cash flow from rental income?
- Long-term property appreciation?
- Redevelopment opportunities to increase value?
- Or are you trying to secure space for a growing business?
2. Identify your target property types.
Choose CRE types that best match what you want to do. Each comes with its own risk and return profile. Generally speaking:
- Office buildings often provide stable long-term leases, but they can face high vacancy risks during economic downturns or shifts toward remote work.
For context, office distress climbed to 8% of all sales by late 2024 as more owners sold under pressure. Vacancy reached 19.9% by March 2025 and new construction slowed sharply, with just 2.6 million square feet started early this year. - Industrial properties such as warehouses are in high demand thanks to e-commerce growth. They are usually cheaper to manage because tenants often handle much of the maintenance and improvements themselves under triple-net leases. However, they may be vulnerable to supply chain disruptions or market overdevelopment.
- Multifamily housing offers relatively steady rental income even in recessions, but rising operating costs and rent regulations can put pressure on profit margins.
- Retail centers can deliver strong cash flow if you choose a well-located asset. There are concerns about online shopping continuing to erode brick-and-mortar traffic, but things seem to be stabilizing — retail vacancy in the US held steady at 10.3% in Q4 2024 while effective rents grew 0.3%. Limited new supply helped stabilize the sector as it continued adapting to e-commerce competition and shifting consumer habits.
- Mixed-use developments blend residential, commercial, and sometimes hospitality uses, so they may be a good choice if you’re looking for income diversification. However, the initial development costs can be high. Property management also tends to be complex.
3. Determine your budget, location, preferred loan structure, and risk tolerance.
Decide whether you will pursue traditional financing from a bank or alternative funding options from private CRE lenders.
How well you access and use financing directly influences returns and liquidity because borrowing costs and repayment terms can either enhance or erode your investment margins.
It’s also important to assess your risk tolerance realistically. Are you comfortable riding out higher vacancies for higher upside?
Or is your priority to create a stable, lower-risk income? These preferences will determine what property types you can target and which markets you can pursue.
4. Align your investment strategy with market trends and projected returns.
Supply chain restructuring due to tariffs, changing urbanization patterns, the normalization of remote work, and other such macro shifts are all reshaping CRE demand.
Match your investment strategy with these trends to position your property for stronger returns over the holding period.
Step 2: Market research and property identification
1. Conduct market analysis
Dive deeper into the fundamentals of the markets you’re considering.
- Analyze vacancy rates to understand supply and demand dynamics. Low vacancy rates often signal strong tenant demand while high vacancies could indicate market saturation or weakening demand.
- Check cap rates (capitalization rates) to gauge expected returns compared to risk. Higher cap rates usually reflect higher risk while lower cap rates often suggest a more competitive, stable market.
- Track rent trends over time to see if rental income is rising, stable, or declining.
- Look into broader economic indicators like job growth, population changes, and new business activity in the area.
2. Use platforms like LoopNet, CoStar, and MLS systems to scout properties.
- LoopNet lists commercial properties for sale and lease across the country. It’s a good starting point for investors.
- CoStar provides deeper analytics — including historical data, rent comps, and vacancy trends.
- Local Multiple Listing Services (MLS) sometimes list smaller commercial properties that may not appear on national platforms. Using these tools together can give you a fuller picture of available opportunities.
3. Work with CRE brokers or advisors for off-market opportunities
Many deals — especially high-demand or value-add opportunities — are traded privately.
Build relationships with experienced CRE brokers and investment advisors to get early or even exclusive access to off-market properties.
A good broker will also tell you more about zoning laws and local development plans that may not be obvious from listings alone.
4. Shortlist properties based on location, zoning, size, current tenants, and potential yield.
- A CRE property’s location is easily the most important factor you need to look at. Properties close to highways, public transit, business districts, and growing neighborhoods tend to be easier to lease and resell, which strengthens both your cash flow and exit options.
- Make sure current and permitted uses (zoning) match your investment plan. If the property’s zoning limits what you can do with it, you could lose rental income or face costly approvals later.
- Evaluate the building’s size and layout. Properties that fit typical tenant needs in the area are faster to lease and won’t require a lot of reconfiguration.
- Review the tenant roster. Avoid buildings heavily dependent on a single tenant (unless that tenant is highly secure).
- Compare the projected NOI against your total costs, including purchase and any needed improvements. Drop properties with weak yields or heavy capital needs relative to income from your shortlist.
Step 3: Financial analysis and due diligence
1. Perform property valuation.
Before you move forward with an acquisition, you need to determine what the property is worth using multiple valuation methods.
- Comparable sales (comps) – Review recent sales of similar properties in the area to benchmark pricing. Pay attention to adjustments for differences in condition/size and location.
- Replacement cost method – Calculate how much it would cost to rebuild the property from scratch, adjusting for depreciation. This method is especially useful for unique properties with few direct comparables.
- Income approach – Estimate the property’s value based on the income it generates. This approach is often used for rental properties and focuses on projected NOI and capitalization rates. NOI shows the property’s ability to produce consistent cash flow after operating expenses, while the cap rate measures the expected return on investment based on the property’s current income and market value. More below.
2. Analyze its financials.
- Net Operating Income (NOI) – This is the property’s total revenue minus operating expenses, not including debt payments. Look for a CRE property with strong and predictable NOI.
- Capitalization Rate (Cap Rate): Divide NOI by the property’s purchase price to gauge return relative to the asset’s value. In general, lower cap rates indicate lower risk and lower returns, while higher cap rates suggest the opposite.
- Cash-on-Cash Return: This measures the annual return on the cash you actually invested (after financing). It can help you evaluate how quickly your money is working for you.
- Debt Service Coverage Ratio (DSCR) – This ratio compares NOI to annual debt obligations. A DSCR greater than 1.25 is usually considered healthy because it shows enough income to cover debt payments with a cushion.
3. Conduct physical inspections, title reviews, zoning compliance checks, and environmental assessments.
- Inspect the property’s physical condition to catch code violations or deferred maintenance that may require major capital expenditures in the near future.
- Order a title search to uncover liens or ownership disputes.
- Confirm zoning compliance. Is your intended use allowed?
- Conduct environmental assessments to check for contamination or hazardous materials, especially if you are investing in an industrial property.
4. Review lease agreements, rent rolls, and operating expenses.
- If the property has tenants, review every lease agreement carefully. Look closely at escalation clauses, termination rights, upcoming expirations, and tenant improvement obligations.
- Analyze the rent roll to verify current income and identify risks like short lease terms or concentrations of income from a few tenants.
- Scrutinize operating expenses (including property taxes, insurance, maintenance, and utilities) to make sure that your income assumptions are realistic.
While you can do much of the preliminary work yourself, it’s always prudent to hire qualified inspectors to assess the building’s structure and systems.
Retain an experienced real estate attorney if possible, and engage engineers if the property involves complex systems such as elevators or environmental remediation.
Step 4: Secure financing.
1. Explore different financing options.
- Traditional commercial loans from banks and credit unions provide competitive interest rates but often require the borrower to have a strong credit history. The property should also have a stable income stream.
- Hard money loans come from private lenders and are based more on the property’s value than on your financial profile as a borrower.
- Bridge loans provide short-term financing to cover gaps between buying a new property and selling another or completing improvements.
- Stated income loans allow borrowers to qualify based on declared income rather than strict documentation, which is why CRE investors with strong assets but less traditional income profiles use them.
2. Prepare documents for loan approval.
Lenders will expect you to present a detailed loan application package. Be ready with:
- Personal financial statements and tax returns (especially if you are taking out a traditional bank loan)
- A business plan if applicable
- Detailed property financial projections including expected NOI and future capital expenditures
3. Understand LTV, interest rates, loan terms, and prepayment penalties.
- The LTV ratio measures how much of the property’s value you are borrowing. A lower LTV helps you qualify for better loan terms. To lower it, you can either increase your down payment or negotiate a lower purchase price.
- Understand the full interest rate structure. If it’s variable, be sure to build in extra reserves to cover potential rate increases over the life of the loan.
- Review amortization periods, balloon payments, covenants, and other loan terms carefully. Pay close attention to prepayment penalties because they can make refinancing or early sales a lot more expensive than expected.
Private CRE lenders often offer faster approvals and creative loan structures that traditional banks may not.
If you need to close quickly or finance a unique property, private commercial real estate lenders can sometimes provide better solutions than conventional banks.
Step 5: Offer, negotiation, and purchase agreement
1. Draft and submit a Letter of Intent (LOI) outlining proposed terms.
This non-binding document outlines your proposed purchase price, key terms, deposit amount, and general timeline for due diligence and closing.
Note that while an LOI is not a formal contract, it is very important in setting the stage for negotiations.
2. Enter into negotiation over purchase price, contingencies, and timelines.
Aside from the usual factors like the purchase price and closing deadlines, you may also be able to negotiate specific contingencies such as financing approval.
3. Execute a Purchase and Sale Agreement (PSA) with defined due diligence and financing periods.
Once both sides agree on the major terms, your attorney can draft and finalize a legally binding PSA that lays out every detail of the transaction, including earnest money requirements and financing deadlines.
4. Include clauses for termination, adjustments, and closing extensions/
Make sure that the PSA clearly explains what happens if inspections uncover problems or financing falls through.
Have your lawyer build in price adjustment provisions and closing extension options to protect you from being locked into a bad deal or losing your deposit unfairly.
Step 6: Closing the deal
1. Finalize the financing documents and title transfer.
Your lender will issue final loan documents for signing once due diligence is complete and financing is approved.
The title company will also prepare the documents needed to transfer ownership.
2. Coordinate with title companies, attorneys, and escrow agents.
These professionals will make sure that all documents are signed and that the transaction is recorded properly.
3. Handle final walkthrough, insurance, and document signing.
Complete a final walkthrough of the property before closing to confirm that it is in the agreed-upon condition.
Secure appropriate insurance coverage and possibly business interruption insurance (depending on the asset type).
You can then proceed with signing all closing documents, including the final settlement statement and loan documents.
4. Record the deed and officially close the acquisition.
After signing, the title company will record the deed with the appropriate county office to officially transfer ownership to you.
The funds are disbursed through escrow and you will receive copies of the final title insurance policy and closing documents.
Conclusion
The best way to reduce your risk in any CRE investment is to follow a clear commercial real estate acquisition framework. It’s also important to work with experienced lenders throughout the acquisition journey. Contact the Private Capital Investors team for a customized loan solution.
