Whether your business has been a longtime tenant of a location or you're looking to move your base of operations from home to a proper commercial space, you may be wondering whether it's time to become the owner of a commercial property.
When to consider purchasing commercial property
So when should you start looking into purchasing commercial property? When thinking about leasing versus buying, a few signs that it may be the right time to buy include:
Benefits of owning a commercial property
1. Build equity. Renting property is sometimes referred to as "throwing money away" because, unlike owning property, you don't build equity with each payment. Equity can be used to get commercial equity loans and lines of credit, which generally have lower interest rates than other loan products. These loans can be used to renovate and expand your business, pay off debts and fund projects.
2. Potential for appreciation. Other than during the Great Recession, average commercial real estate prices in the United States have generally risen. If you sell your property in the future when the real estate market is healthy and your location is in demand, you could make a sizable profit thanks to appreciation.
3. Earn additional income. Your business may not utilize the entirety of your commercial space, providing you with an opportunity to earn additional income from renting out the extra space. This could prove particularly useful if your business relies on seasonal business by providing a steady stream of income throughout the year.
4. Predictable payments. When you rent, the amount you pay may increase whenever you renew your lease agreement. By purchasing a commercial property, you can count on a fixed monthly payment for the entirety of your occupation.
5. Qualify for tax breaks. Owning your own business space may qualify you for deductions on mortgage interest, depreciation expenses, property taxes and more. However, be aware that these tax benefits may not outweigh the tax benefits of leasing.
Consider creating a limited liability company (LLC) to own the commercial property. This allows you to keep the liabilities of your property separate from those of your business.
Just because you can purchase commercial real estate, doesn't mean you should. Purchasing real estate can tie up your business's liquidity, which can be trouble if you end up with unexpected, pricey repairs. And you may find that the property wasn't the right fit after all, meaning another move and perhaps a difficult selling process. Be confident that purchasing commercial real estate is right for your business before signing on the dotted line.
Work with a financial professional to determine the best financing option for your building purchase. The commercial real estate bankers at California Bank & Trust can help you find a loan with the right down payment and interest rate to match your business's needs. You can prepare for next steps by learning more about loan application requirements for commercial real estate.[cite::171::cite] [cite::172::cite]