What Every Business Owner Should Know About Purchasing Commercial Real Estate

  • First Bank
  • 01/29/2019
  • Business
  • Article

Whether you conduct your business out of a storefront, a factory, a farm, or an office, you’re among the multitude of businesses that operate out of a commercial space. Astute business owners are responsible for taking inventory on a wide variety of elements in their business’ success – be it accounting and payroll, managing employees, and even down to evaluating their existing workspace and property. It’s important to assess your needs in terms of workspace. As your long-term business needs adjust to fit the demands of your business’ growth, owners should weigh the pros and cons of renting or owning a commercial property.

Much like owning a home versus renting one, a commercial mortgage can also provide a more practical alternative to leasing a workspace. As a business owner, however, you also know that not every business evaluation offers a “one size fits all” solution. Whether you’re a startup or an established business that’s expanding, exploring both options while in the market for a commercial or industrial space is crucial.

Advantages of buying and owning a business property:

Lower costs and building equity

  • Monthly lease/rent payments can often exceed mortgage payments on similar properties. Depending on the market at the time of purchase, interest rates are typically favorable so owners may enjoy lower mortgage payments versus lease payments each month. Because of this, business owners build equity rather than handing money over to a landlord. As you continue to build equity in the property, you will also increase the overall value of your business.

Stability in fixed overhead

  • Businesses that own their premises with the help of a fixed-rate mortgage are able to more accurately budget their real estate-related overhead costs throughout the term of the mortgage. Lease terms, however, are not always as definitive and can be impacted by several factors including increased lease renewal rates and the cost of potential tenant improvements.

Security and freedom:

  • Owning your property means you have control over it (within the confines of laws and local restrictions), giving you the freedom from landlords and protection from potentially more restrictive lease terms, neglected maintenance and other issues. Properties owned by the business are also considered an asset, which can be used as collateral for equity financing.

No matter the size or stage of your business, regular evaluations of your existing property and the options you have are paramount to your success and growth. If you’re ready to take the steps toward purchasing your own commercial property, consult your trusted advisor. First Bank can help you in this process by assessing your current business needs, long-term goals, financing options, and advising you on the advantages of owning versus leasing your workspace. Nobody understands a family business quite like a family business. Let’s put our heads together.