Commercial property can be a strong investment, but problems that are missed in escrow are expensive to fix later. These are seven red flags we look for when representing buyers in Los Angeles.
Always compare the rent roll to the actual signed leases. Look for rents, expiration dates, options and concessions that do not line up. Ask for tenant estoppel certificates so tenants confirm their terms in writing.
Roofs, plumbing, electrical and parking lots are costly to replace. A professional property inspection is worth the cost, especially on older buildings.
Gas stations, dry cleaners, auto body shops and older industrial sites can carry contamination. A Phase I Environmental Site Assessment helps identify risk before you close.
A building may be operating legally under older rules but would not be allowed today. That can limit what you can rebuild or change. Check zoning and permits early.
In the City of Los Angeles, the Rent Stabilization Ordinance (RSO) generally applies to rental units in properties first built on or before October 1, 1978. That affects rent increases and tenant relocation rules. Know whether a building is covered before you underwrite it.
Easements, liens and recorded restrictions can limit how you use the property. Review the preliminary title report carefully and ask questions about anything you do not understand.
A cap rate well above the area's typical range can signal vacancy risk, below-market expenses on paper, or a tenant who is about to leave. Rebuild the operating statement with realistic expenses before relying on it.
None of these red flags means you should walk away automatically. They mean you should ask the right questions. If you are buying in Los Angeles, our team can help you review a deal before you commit. Contact us or use our Find Me a Property page to start a search.
This article is general information, not legal or tax advice.