Commercial Real Estate FAQ
Answers to the questions we hear most often from investors and business owners.
Getting Started
Q: How much money do I need to invest in commercial real estate?
A: It varies widely. Small multi-family properties might require $50,000-$100,000 down. Larger commercial deals often need $250,000+ for a down payment. However, syndications and partnerships can allow participation with less capital. We’ll help you find opportunities that match your budget.
Q: Is commercial real estate riskier than residential?
A: Different, not necessarily riskier. Commercial leases are typically longer (3-10 years vs. 1 year), providing more stable income. However, vacancies can last longer, and the tenant pool is smaller. Proper due diligence and market knowledge reduce risk significantly.
Q: Can I invest in commercial real estate if I have a full-time job?
A: Absolutely. Many commercial investors are passive—they hire property managers and focus on the investment rather than day-to-day operations. Triple-net (NNN) leases put most responsibilities on tenants, making ownership even more hands-off.
Buying Commercial Property
Q: How long does it take to buy a commercial property?
A: Typically 60-120 days from accepted offer to closing. Commercial transactions involve more due diligence than residential—inspections, environmental reports, lease audits, and financing take time. Complex deals can take longer.
Q: What’s the difference between Cap Rate and Cash-on-Cash return?
A: Cap Rate measures the property’s return independent of financing (NOI ÷ Price). Cash-on-Cash measures return on your actual cash invested after debt service. If you pay all cash, they’re similar. With leverage, Cash-on-Cash is usually higher than Cap Rate.
Q: Should I buy commercial property in an LLC?
A: Usually yes. LLCs provide liability protection, separating your personal assets from property risks. They also offer tax flexibility and make it easier to bring in partners. Consult with an attorney and CPA for your specific situation.
Q: What due diligence should I do before buying?
A: At minimum: financial review (rent rolls, operating statements), physical inspection, lease audit, title search, environmental assessment (Phase I), zoning verification, and market analysis. We guide clients through each step.
Financing
Q: What credit score do I need for commercial financing?
A: Most lenders want 680+ for conventional loans. SBA loans may accept 650+. However, commercial loans weigh property cash flow heavily—a strong property can offset a weaker personal credit profile.
Q: What’s the typical down payment for commercial property?
A: Usually 20-35% for conventional loans. SBA loans can go as low as 10-15% for owner-occupied properties. Investment properties typically require 25-30% down.
Q: What’s a DSCR and why do lenders care about it?
A: Debt Service Coverage Ratio = NOI ÷ Annual Debt Payments. It shows whether the property generates enough income to cover the mortgage. Lenders typically require 1.20-1.35 minimum (meaning 20-35% cushion above debt payments).
Q: Can I use an SBA loan for commercial property?
A: Yes, if you’ll occupy at least 51% of the property (SBA 504) or use it for your business (SBA 7a). SBA loans offer lower down payments and favorable terms but have more paperwork and requirements.
Leases & Tenants
Q: What’s the difference between Gross, Net, and Triple-Net (NNN) leases?
A: Gross Lease: Tenant pays flat rent; landlord covers all operating expenses.
Net Lease: Tenant pays rent plus some expenses (taxes, insurance, or maintenance).
Triple-Net (NNN): Tenant pays rent plus ALL operating expenses—taxes, insurance, and maintenance. Landlord receives predictable net income.
Q: How do I evaluate tenant quality?
A: Review financial statements, credit reports, business history, and references. For retail, consider brand strength and foot traffic. National tenants with corporate guarantees are lower risk than local businesses. Lease terms and personal guarantees also matter.
Q: What happens if my commercial tenant stops paying rent?
A: Commercial evictions follow different rules than residential. The process varies by lease terms and local law, but generally moves faster than residential evictions. Having strong lease language and tenant screening upfront is the best protection.
Chicago-Specific Questions
Q: Why is Chicago a good market for commercial real estate?
A: Chicago is the #1 apartment market in the United States. It has a diversified economy (finance, healthcare, tech, manufacturing), world-class infrastructure, major transportation hub status, and relatively affordable entry points compared to coastal markets. Strong fundamentals with room for growth.
Q: What areas of Chicago are best for commercial investment?
A: Depends on property type. Industrial thrives near O’Hare and along I-55/I-294 corridors. Multi-family performs well in gentrifying neighborhoods and near transit. Retail follows population density and demographics. We analyze specific submarkets based on your investment criteria.
Q: How does Chicago zoning work?
A: Chicago uses a zoning code that designates permitted uses for every parcel. Commercial zones (B, C) allow business uses; manufacturing zones (M) allow industrial. Special districts and planned developments have unique rules. Zoning changes require City Council approval—a process we understand well.
Q: Are there incentives for commercial development in Chicago?
A: Yes. TIF districts, property tax incentives (Class 6b, 7, 8), Opportunity Zones, and various city/state programs can significantly improve project economics. Knowing which incentives apply—and how to access them—can make or break a deal.
Still Have Questions?
We’re here to help. No question is too basic—everyone starts somewhere.
