Commercial real estate may be one of the best investments you ever make. Whether you’ve successfully built your small business from the ground up or you’re just starting out, a question you need to answer may surface eventually: Should you purchase property for your business? Buying commercial real estate can be very complex, even for insider pros. It’s not the same as buying a home. It takes time, research and planning.
Purchasing property for your business is a good idea. When it comes to commercial real estate, the word “commercial” applies to any property that you use to grow, expand or support your growing business. This can be anything from warehouses, shopping centers or hotels to office buildings, apartment complexes and more. With this in mind, there are many reasons to consider making such an investment. It’s a chance to build equity, make your expenses more predictable and possibly gain tax advantages. Here are more reasons to consider purchasing commercial real estate:
- Fixed rates. Enjoy the peace of mind of knowing what your costs will be month to month with a fixed-rate loan; there is no exposure to fluctuations like market rent increases.
- Tax breaks. The costs involved in owning and running your business space can result in favorable capital gains treatment and expense deductions like mortgage interest, property taxes and more. Consult with your accountant before making a decision to buy.
- Total control. When you own, you call the shots. You have direct control of your investment, as well as any tenants or uses of the building. Want your favorite color? Done. Think it’s time to renovate? Go ahead.
- You have the freedom to customize and tailor your business as needed. This can really be a plus as your business evolves.
Public exposure. Show off your brand and establish the personality and culture of your business for all to see. Maintaining, customizing and improving the quality of the property helps represent your business and promotes strength and stability.
Tips for purchasing commercial real estate.
Although there is no tried-and-true formula or one-size fits-all strategy to buying commercial real estate, there are common guidelines that any small business owner can use to get started. Ask yourself the right questions. Before you begin, you should be clear about your objectives and know what you want. Some questions to consider:
- What kind of property are you looking for?
- Is it for your own business? To rent out? To build equity?
- What area would be ideal?
- What’s your risk tolerance? How much are you willing to put into it?
- What skills can you bring? What skills do you need to hire for or contract out?
Find the property that fits your business. Consider the following when deciding where you want to buy:
- Location. This is the number one issue in purchasing commercial real estate. Where you set up shop can make all the difference, whether you want to be close to your customers; need access to rail, highway or shipping lanes; or any other reason.
- Legal considerations. From commercial office space to industrial warehouses, make sure local zoning allows for the type of business you’re bringing.
- Physical condition. Have a thorough inspection done of the property and find out beforehand about potential environment or liability issues, such as asbestos or lead paint.
- Limitations. Be familiar with all zoning laws or building codes because there may be conditions in place on whether you can make changes to the outside or inside.
- Parking. Make sure you have as much parking space as you need, as well as up-to-date disability access.
- Flexibility. If you’re looking to grow your business, look for property that you can expand. Also consider the opposite: If you don’t end up using all the space, can it be rented out?
Assemble a team of experts.
Surround yourself with specialists who know the nuts and bolts of areas you may not.
- Commercial broker. A real estate broker will help you locate potential properties in your price range.
- Mortgage broker. Get help with all financing needs, from guaranteed government loans to commercial real estate loans .
- Accountant. Bring in an expert who will advise you on what your business can afford, navigate you through tax benefits and forecast your operating budget.
- Lawyer. Make the process easier on yourself with a legal representative to negotiate and complete the entire transaction.
Ways to make commercial real estate work for you.
There are many ways your small business can benefit from owning commercial property. Here are a few:
- Investment potential. Owning is an investment that can increase in value over time. Typically, and depending on the location, commercial properties will return between 6% and 12% each year. That’s much higher than the average 1% to 4% of single-family residential properties.
- Make money advertising. There are many ways to capitalize on your commercial property when it comes to advertising, such as: selling billboard or signage space on the property, publishing a directory of services if you have multiple tenants and then selling ad space within.
- Cross-advertising with local or neighboring businesses where it makes sense. Offer services to tenants. Make additional services available to purchase for those renting from you, such as premium parking spaces, trash removal, maintenance services and more.
To sum up: Owning commercial real estate can really pay off.
As a small business owner, the upside to owning commercial property can be very enticing. You become your own landlord and it can also boost your visibility.
With the right amount of due diligence and research, buying commercial real estate can be a wise investment — and fertile ground for the growth and success of any small business.