Is it time to purchase the commercial property you’ve been leasing? If you’re a small business owner who currently rents office or retail space, you could be in a position to benefit from becoming an owner.
Of course, the decision to own or rent will depend on a number of factors unique to your business, such as your location, revenue, and business experience.
But there are general positives for your business that come from purchasing commercial real estate. Here are five of the top benefits you could expect to enjoy should you transition from renter to owner.
1. The ability to build equity in your property
Perhaps the greatest drawback to leasing a commercial property is that every monthly payment simply ends up in the landlord’s pocket. However, purchasing that space gives you the ability to immediately start building equity in the property.
If that property increases in value over time, you can cash in by selling or leasing the building.
Those who secure a loan to help purchase commercial real estate also have the option to tap into their equity by executing a cash-out refinance. By refinancing and taking out a larger loan, a borrower can convert their existing equity into cash. The amount of the original loan is then repaid to the lender while the rest can be used for business improvements or future investments.
2. The creation of additional revenue streams
If you purchase office, retail, or warehouse property that your business can’t occupy completely, you have the opportunity to establish a new revenue stream by leasing the additional space to tenants.
Rental income can play an important role in bolstering your revenue during difficult periods for your business. This can provide a real sense of comfort for those working to get their small business off the ground.
It must be noted that taking on tenants requires project management capabilities you may not currently possess. If you do plan on leasing a portion of your commercial property, consider investing in property management training or hiring a professional to assist you.
3. Tax benefits
Owning commercial real estate puts you in a position to enjoy tax benefits that could significantly impact your bottom line.
As an owner, you can take advantage of depreciation deductions and mortgage interest write-offs that can offset the cost of your original purchase and generally ease the tax burden you may currently feel each year.
Be sure to consult a tax professional to learn more about the benefits (and potential drawbacks) of owning commercial real estate.
4. Freedom and control
Renting a commercial property leaves you with few options when it comes to renovations or additions. This can be a real source of frustration for those who enjoy being in control of all aspects of their small business.
Once you own your office or storefront, you have the freedom to truly make it your own. If you purchase your restaurant’s building, for example, you could finally create more room for tables or redesign the kitchen. Getting these types of changes approved by a landlord can take ages – by the time you’re able to make a necessary change, your business has already suffered irreparable damage.
With control also comes consistency. Owners of commercial real estate never have to worry about a landlord’s rent hikes or rule changes that can stunt a business’ growth.
5. Appreciating value
Commercial real estate investments have a history of strong appreciation. Besides the general demand increases that come from scarcity in an active market, commercial real estate can appreciate in value based on their ability to generate income.
This means that as the owner of a commercial property, you have a hand in increasing the asset’s value. By renovating the building or adding rentable space, you can effectively add value to your original investment. This is one of the main advantages a hard asset like commercial real estate has overstock or bond investments.
Owning commercial property is not without its disadvantages as well. The purchase price itself may be staggering for those just starting their business. Additional challenges having to do with building repairs or tenant vacancies can be debilitating for business owners who don’t have the resources to manage them.
But you may find that the benefits of finally owning your own office or retail storefront far outweigh the potential difficulties. If you value day-to-day control and have a long-term vision includes both your business and the building it occupies, ownership may be your best bet for success.
If you’re interested in purchasing a commercial property, one of your first steps should be to determine the financing solution that makes the best sense for your business. Commercial Direct, a division of Silver Hill Funding, LLC, specializes in providing flexible commercial mortgages to small business owners – even those with tax documentation issues that make it difficult to work with traditional banks.
Author: Zack North
Zack North is the Director of Marketing for Commercial Direct. As a regular contributor to a number of top industry publications, Zack enjoys writing about topics that help investors and business owners approach commercial mortgage financing with confidence.
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