Buying commercial real estate is a fantastic investment and an ambition which many business owners aspire to. Some people decide to purchase premises in the early days of their business, while for others it is a natural progression as the business has grown over time. It’s important to note that buying real estate is a complex process whether you’re a first-time buyer or a seasoned buyer, and even more so when you are buying commercial premises rather than a home.
You need to approach buying commercial real estate very cautiously and be aware that every purchase will have its unique quirks and obstacles. However, when done correctly and in appropriate circumstances, it can be a very lucrative investment. This guide outlines the potential benefits and key considerations involved in buying commercial real estate.
Why buy commercial real estate for your business?
Buying commercial real estate rather than leasing is a great step forward for your business and can mean purchasing any property which will enable you to run and grow your business. This could a brick-and-mortar store, a warehouse for storage and/or distribution, offices, manufacturing facilities and more. It’s an opportunity to build equity and make your outgoing expenses more concrete, as well as offering some tax benefits. Here are some other great reasons to invest in commercial real estate:
- Peace of mind: With a fixed rate mortgage you can have longer term peace of mind that your monthly costs will not increase as they would with fluctuations in the rental market.
- Tax advantages: You may be entitled to deduct expenses from your taxes such as interest on your mortgage. Of course, this will vary depending on circumstances so it’s important to seek advice from an accountant on this matter.
- Control: While renting premises you are at the mercy of the landlord in terms of renovation or improvements, but when you are the owner you can make the decisions you need to in order to further your business.
- Brand awareness: With a permanent base for your business you can establish your brand with a physical presence and weave your company values and culture into the building’s design. By investing in the premises you can show customers that you are a strong and stable business.
Essential tips when buying commercial real estate
Of course, there is no one-size-fits-all checklist to consult when buying commercial real estate. However, there are some common factors which will affect every business owner when they start to look at potential premises for their business. You need to ensure that you are asking the right questions and that you have prioritized your objectives before your begin your search. This will include understanding what your motivation is for buying property and deciding on the type of property you want to buy, the area it should be in, how much you are willing to invest and what resources, contractors and professionals you will need to make it happen. When choosing a property, there are some key factors to consider.
- Location: Where you set up your business can have a direct and significant impact on its potential for success. You should be close to customers and clients as well as good transport links for suppliers and distribution.
- Zoning laws: Make sure that the area you choose has zoning laws which legally allows a business like yours to trade there. These laws may also restrict the changes you can make to the interior and exterior of the property.
- Condition: The property should be inspected by experienced professionals for specific environmental, safety and liability issues like lead paint or asbestos. For example, if there is an on-site sewage system you should contact a septic tank inspection company to check it is in good working order.
- Parking: You should consider the parking facilities for staff, suppliers and customers as well as disabled access.
- Future potential: If you want to expand your business in the future, will the property enable you to do so? Consider buying a bigger property than you need at the moment; if you don’t need the space now, you may be able to lease some space to a smaller business.
Bring in the professionals
Unless your business is in commercial real estate, it’s unlikely that you’ll be able to complete the purchase of your business premises without some professional guidance. Build yourself a team of people who have the knowledge you lack including a real estate broker, a mortgage broker, an accountant to ensure you can afford the purchase and ongoing running costs and advise you on the tax benefits, and a lawyer to negotiate the transaction and ensure all legal requirements have been met.
