How do you know if you should Lease or Own a Commercial Building for your business needs?
The economy is growing, rents are rising, and commercial real estate space is more difficult to find.
So what questions should you answer to know if you should lease or own a commercial building for your business needs ?
Allen Buchanan is a principal with Lee & Associates in Orange County, CA and a true commercial real estate pro. He has specialized in industrial space sales and leasing since 1984 and provides the following tips for business owners considering purchasing a commercial building.
Questions to Determine if You Should Lease or Own a Commercial Building
Where is the market in the cycle? Commercial real estate is very cyclical. It is important to consider what is the current state of the market. Is space plentiful or limited? Are capital markets willing to lend with favorable terms? Is there an expected growing demand for space like you need?
Who are You?
What type of company is yours? What are the space needs for your business? Do you expect to outgrow your space in the next three years? Are you making money? A lender will look for a favorable track record including, have you been in business for at least five years?
If you are stable, have a proven track record, and anticipate the continuation of your business and have the time to benefit from long term appreciation, buying might fit be for you.
What are the Steps to Buying Commercial Real Estate?
If you have been in business for a while, you likely have received numerous calls from commercial real estate brokers. If you are thinking about buying, interview a couple of theses brokers and find out if they can potentially be a resource for the time it takes to find a property.
Find out if you are eligible for financing. The commercial real estate broker can point you to a potential lender. Typically SBA loans and brokers provide some
How long will it take? To be successful, you should plan on one to two years before you are moving into a new property. The lengthy process includes:
- Potential misfire
- Loan underwriting
- Physical inspection
- Build out
- Permitted usage question and answer with city
What are the Benefits to Ownership?
Long term, for the right situation, you can benefit significantly through:
- Appreciation: rent increases and demand will push the value of the building up over time. Provided you have the time, this is a huge opportunity.
- Depreciation: for the owner of the building, the purchase price or the structure can be expensed over 39.5 years.
- Cost stability: when you own a building, you can more easily control the cost of space for your business needs.
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