If your business occupies retail or commercial space, it may be to your advantage to purchase your building and stop paying rent. Here are some questions to help determine whether owning commercial property is right for your business.
- Do you have the cash? Most commercial building purchases require 20 percent down payments. If making the down payment throws your business into a cash crunch, you may not be ready for property ownership just yet.
- Can you afford the mortgage? Be sure to calculate whether your monthly costs would rise if you took on a mortgage. If your business can’t afford an increased expense, it could create cash-flow problems.
- Can you use the writeoffs? If your business is profitable, property ownership can help reduce your tax burden. You should be able to write off a portion of the building’s cost each year in the form of depreciation. One other possibility is to buy the building personally and then rent it to the company, a structure that has some tax advantages.
- Do you need the control? Some businesses want to drastically alter their spaces as they create their unique company identity; they want to paint all the walls black, tear walls out, or install complex machinery that would be difficult or expensive to remove. If you want to do something to your store or office that you think a landlord won’t go for, purchasing a building may be a better option than renting.
- Is a good building available? Research the market to see whether prices and interest rates are favorable and whether you could either buy your existing building or find a desirable location nearby. Remember that moving and fixing up a new location will add to your business’s costs and require marketing to make sure customers know where you’ve gone.
- Will it help you grow? Consider your company’s growth plans before you purchase property. If you’re growing fast, purchasing the small storefront you’re in now may only create headaches down the road, when you need to move to larger quarters. On the other hand, if your building has multiple spaces and the other slots are currently filled with other tenants, you may be able to grow in place by gradually ending leases and taking over more space.
- Is it a good investment? Aside from giving you more control over your business and a tax writeoff, purchasing commercial property is an investment. Try to take a dispassionate look at the property with this in mind. Is it in a thriving neighborhood? Is it in a commercial district that’s popular and full of tenants, or half empty? Are prices trending up or down? Has the building been well-maintained? Also consider how long you plan to stay in the space; will it be long enough for the property to appreciate in value? If not, could you easily rent it out to a tenant if you move?
- Are you cut out to be a landlord? If your building has other tenants, you’ll need to deal with their problems and make myriad decisions on everything from rent rates to building improvements as you manage the property. Evaluate whether this additional responsibility fits into your busy schedule or whether a good property manager could help.
An experienced commercial realtor should be able to help you understand market trends in your area and determine appropriate prices for local commercial property. If you decide to buy, carefully compare several properties to make sure you’re getting the best location at the best price.
Business reporter Carol Tice contributes to several national and regional business publications.