Are you currently leasing office space for the day-to-day operations of your business?
Are you tired of annual rent increases digging into the profit your business generates?
Perhaps you’re ready to purchase your own commercial property. After all, owning commercial real estate allows you to build equity that you can leverage for financial gain down the road.
Owning Commercial Real Estate
The ownership of commercial real estate also gives you access to tax benefits and deductions that can alleviate cash flow concerns for your business. (Be sure to consult a tax professional to better understand these potential benefits.)
For many business owners, the decision to purchase their own space has to do with control. Once you own your commercial property, you can make necessary cosmetic or structural improvements without having to petition a third party.
There are a number of reasons why you may choose to purchase commercial office space. But how do you find the right property for your business?
Here are a few tips to help you make a more educated decision.
1. Prioritize building size and location
Your business requires a certain amount of space and functionality right now. Do you expect those needs to change in 15 years?
The key to finding the right property is to solve for both your current and future needs. Facilities and transportation options should be considered. Be sure to also review the businesses nearby — even if you don’t run a consumer-facing business like a retail clothing store or restaurant, you’ll want to operate in an area experiencing economic growth.
2. Consider your business needs
While a dentist and an accountant can both occupy office space, their specific needs will vary greatly.
Think about your business and the must-haves you’ll need to identify as you search for a new location.
Depending on zoning laws in your area, you may be able to make some adjustments to a property following your purchase. But those additional expenses can be a burden, especially following the down payment you make to acquire the property.
Instead, look for real estate that is already suited for your business. You’ll save on expenses and create a smoother transition as you move to a new location.
3. Make a decision on tenants
Those who invest in multi-unit commercial properties instead of rental homes enjoy the benefit of collecting multiple rents each month instead of just one.
If you purchase an office property with additional units, you, too, have an opportunity to establish a passive income stream in this manner.
The drawback here is the amount of time and effort it takes to manage a property that houses additional tenants. Business owners who lease office space from you expect that you will promptly address maintenance issues and work to make the location appear as inviting as possible.
Managing a property effectively is a full-time job – if you’re not prepared to serve in this capacity or hire a property manager, then you may wish to focus only on single-unit office properties.
4. Choose your ownership structure
An attorney can help you decide how best to establish the ownership structure for your office property. There are a number of different options available depending on the number of owners in place and the level of liability with which each feels comfortable.
Common holding structures include the Limited Liability Company (LLC), C-Corporation, or Sole/Joint Ownership.
Contact a legal professional who specializes in this area to learn about the various plusses and minuses of each structure. They can suggest the option most likely to maximize tax benefits and minimize personal liability.
5. Know your financing options
Understanding the financing options for your office property is a crucial component of the process. Securing a loan for an owner-occupied commercial property doesn’t have to be as challenging as you may have heard – the key is to understand how each of the options available can affect your overall financial strategy.
One basic way to look at mortgage lenders is to separate the bank and non-bank options.
Bank lenders typically offer the lowest interest rates, but they also enforce documentation (read: tax returns) requirements and credit guidelines that prevent many prospective borrowers from getting their request approved.
On the other hand, non-bank lenders offer reduced documentation loans, lend on a wider variety of commercial property types, and provide other alternative solutions that can make it easier to secure funding. As a result, interest rates are typically higher for these types of loans.
The best financing solution for you will likely depend on 3 factors: your credit history, the amount of documentation you feel comfortable providing, and the property in question.
If you think it’s time to own your commercial office space, these steps should help you start the acquisition process. For more detailed information about the financing options available for your purchase, reach out to one of our experienced loan officers today.
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.