Whether you’ve successfully built your small business from scratch or are just starting with the business planning, there’s one question you need to answer: should you buy property for your new business? Owning a commercial property is a decision that requires a careful weighing of pros and cons. In the right circumstances, it can be a wise investment.
So whether you’re planning to establish a class teaching the Suzuki method for violin lessons or dream of starting a Starbucks franchise, buying commercial real estate can be complicated, even for insider pros. It’s not the same as buying a house. It takes careful research, planning and time.
Why Buy a Commercial Property?
Buying a commercial property is a chance to build equity, possibly gain tax advantages and make your expenses more predictable. Consider the following reasons for purchasing commercial real estate:
• Tax breaks. The costs involved in running and owning your business space may guarantee favorable capital gains and deductions in expenses (e.g. property taxes, mortgage interests and more). Get in touch with your accountant before you buy a property.
• Fixes rates. Enjoy peace of mind knowing your monthly costs by using a fixed-rate loan. With a fixed-rate option, you reduce the likelihood of experiencing market rent increases.
• Total control. When you own the property, you call the shots. You have direct control over your investment, as well as how you use the building. If you want to renovate, go ahead.
Considerations When Purchasing Property
Step 1: Assess Your Investment Options
If you want to buy a commercial property, understand your options first. For example, commercial properties often include the following:
• Office buildings
• Apartment buildings
• Retail buildings
• Industrial buildings
• Mixed-use buildings
Secure Your Finances
Before you settle on buying a property, line up your financing options in advance. The first step in securing real estate financing is to check your credit. Depending on the type of loan you apply for, as well as your lender, your current credit scores may come into play.
Review your credit scores and make sure that the information in your financial reports is accurate. Once you verify the accuracy of your credit information, consider the type of financing you can qualify for. Depending on your financial situation, the type of property and other considerations, consider one of the following financing options:
• Business loans
• Apartment loans
• Seller financing
• Commercial real estate loans
• Bank balance sheet loans
• Hard money loans
Before you settle on a financing option, compare fees, interest rates, repayment terms and other factors. Seek help from a financial consultant first.
Find the Right Property in Your Market
Once you’ve secured your finances, it’s time to shop for the right property.
Work with a real estate agent who can help you find properties that meet your criteria. Pay attention to all the important factors, such as location and square footage. Refrain from getting distracted by a “good” deal, however. Even if an office building looks great on paper, it doesn’t automatically become THE property of your dreams. You have to study it first.
Do Your Homework
When you’ve finally located a property you want to buy, do another round of research. Some questions you can ask during your research are:
• What has the property been used for in the past?
• Is the property appropriately zoned for your business?
• What are the property taxes?
• Is the building in need of significant repairs?
Also, don’t forget the following:
• Legal considerations. From industrial warehouses to commercial office space, make sure local zoning laws allow your business
• Familiarize yourself with building codes or zoning laws since there are conditions in place on whether you can make changes inside or outside.
• If you want to grow your business, look for a property that you can expand.
Make an Offer and Close the Deal
When you find the property you want to purchase, make an offer. Your real estate agent can help you write your purchase offer, but it’s still wise to have someone to review it before you sign. Expect the seller to negotiate for more money when you go under contract.
Also, make sure your offer has due diligence and a contingency plan in case things don’t go according to plan (e.g. inspection blunders or zoning issues).
Finding a new home for your business requires careful planning and consideration. Get in touch with a real estate agent today to learn about your options.