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According to the Global Entrepreneurship Mentor Report, over half of entrepreneurs operate their business from home after it has been established. Another 30-50 percent of commercial space is occupied by small businesses, according to the Bank of America and the U.S. Small Business Administration. Whether you have decided to expand your business or want to explore the benefits of owning your business’ property, buying commercial real estate may seem like the natural next step. For instance, if your business happens to be part of the rapidly growing industries in Pennsylvania, it may be time to size up your space. However, buying your first commercial space is not always straightforward. But it can also turn out to be a great business investment – if it is the right fit for your business goals, and it is approached strategically.
Why Purchase Your Business Property?
When it comes to owning or leasing space for your business, many business owners cite the large capital investment as a major deterrent against purchasing commercial space. While it is capital intensive and should be approached with financial caution, owning your business commercial property also gives you more options as a business owner. For instance, property owners are entitled to the proceeds of land appreciation. Business owners can also benefit from tax savings through yearly deductible depreciation – a bonus for their tax liability.
There is also the cost-benefit of owning your business’ property. Leases tend to be more expensive in the long run. This is because most of them account for maintenance fees, landlord profits, and capital costs. For those with a restrictive business cash flow, the smaller installment payments can act to their advantage, however. If you are not completely sure of the final location of your business – or you own a highly seasonal business – buying a commercial property may not be the best option. Of course, businesses such as these can tap into other solutions to keep a property purchase financially viable in the off-peak months, such as renting out their space. With these points in mind, if you do decide to add a property to your business’ asset portfolio, it is recommended that you do so with the utmost care and a few handy guidelines.
Draft A Realistic Business Space List
The very first rule is to define your business space needs realistically. Many businesses make the mistake of not incorporating their current business processes, structure and plans into their search for a commercial property. As a result, they end up with a short term property or one that is unsuitable for its expansion plans. Before you book viewings for commercial properties, make yourself a list of all the must-have property features, the optional extras, and the nice to have features. What is your ideal office location? What do you need your property to contain – prebuilt factories or land? According to Texasland, 40 percent of land bought and sold in the U.S. is done in Texas, which makes it a potential location for businesses looking for open land or ranch-style properties. Also, what amenities do you need to easily access? How much office space will your business need? To help you with estimates, utilize an office space or workspace calculator.
Don’t Rule Out Different Spaces – Do A Pro/Con List Instead
Additionally, keep your shortlist of properties varied, and assess them objectively. While it is recommended that you use your business space list to help with your search, try not to use it restrictively. Instead, incorporate other aspects into your criteria, such as potential future uses for space, cost of remedial work (and timeline) to get the space ready, and resale value in the future. As a commercial property owner, you may also want to think of the current rent or income of the property if it is leased, and any upcoming infrastructural works for the surrounding area.
Use A Budget And Financial Expert To Work Out Your Business’ Financial Position With A Mortgage In-Play
Finally, focus on your business finances. Being a commercial property owner will add significant financial obligations to your business budget. You need to ensure your business cash flow can comfortably cover it every month. This includes checking your reserves for a property deposit without tying up all of the business’ liquid capital, and being able to afford monthly mortgage repayments based on your business credit scores and financial situation.
If you want to get a clearer picture of what your monthly mortgage payments for commercial property would look like, use a commercial property mortgage calculator. As of December 2020, the commercial mortgage rates averaged 2.806 percent for a 30 year fixed commercial mortgage. Don’t forget to account for hidden and supplementary fees like loan application fees, solicitor fees, and loan origination fees.
Your first business property probably won’t be your last. However, it may be your most important business property purchase. The way you approach this decision as a business owner can set the tone for your business profit margins and property ownership goals. While it is not an easy process, it can be a worthwhile one – if it is the right fit for your business.
