Owning commercial real estate could help your business
Deciding to buy property to house your company rather than lease has big implications for your business. The rewards of owning commercial real estate can be significant, from building equity to the freedom to modify the space to meet your needs.
Enjoy the advantages
Gain control over the real estate portion of your overhead. When you lease property, every time your lease comes up for renewal, there's the possibility of an increase in the rent. Real estate markets can be volatile, and a whopping increase could leave you scrambling. Purchasing real estate makes those costs more predictable.
Get room to grow. If your company is expanding and you forecast a need for more space in a few years, buying gives you flexibility. You can rent out space you don't need now, but have it available when you're ready to grow into it. In the meantime, you'll have an additional source of income.
Enjoy potential investment benefits. You can depreciate the property for tax purposes and you may be able to deduct interest payments. Over the long term, the property may appreciate in value. Your accountant can help you analyze the tax and operating budget benefits.
Overcome the disadvantages
There are also risks to purchasing commercial real estate, so you'll want to weigh the decision carefully.
The location may become undesirable. The real estate market can be fickle; a neighborhood can be trendy one year and overlooked the next. Of course, the opposite is true, too. Conquer it: Thoroughly research any property you're considering for a purchase and the area surrounding it. For instance, check with local government agencies to find out about plans for the area that could affect the property.
You'll tie up liquidity. There are large upfront costs when you buy and renovate property. That liquidity won't be available for other business needs. And it's not always easy to sell real estate, especially if the real estate market slumps. Conquer it: Be sure your company's finances are in good shape so you can obtain credit if needed.
There may be unpredictable expenses. Unexpected repairs, tenants who stop paying rent and other unknown factors could compromise your cash flow. For example, if a tenant damages the property, you may need to simultaneously pay for repairs and attorney's fees. Conquer it: A line of credit can help you through periods of higher than normal expenses.
Make the right decision
If you're like many business owners, your expertise doesn't lie in the field of commercial real estate. Fortunately, the commercial real estate bankers at California Bank & Trust have detailed knowledge of local real estate markets. They can help you explore whether buying is a good option for your company. And if you decide to buy, they can help you structure a loan to meet your needs, whether you choose conventional or SBA financing. Learn more about owner-occupied financing from California Bank & Trust.