7 Things to Consider Before Buying Business Property
Your company has grown over the years – to the point where you have more people than you have space. It’s time to expand, which is a great thing! It means your company is headed in the right direction. But buying business property could be a scary proposition.
Don’t be discouraged! It’s obviously time to find a new business property, but you need to do some planning beforehand. Here are seven things to consider before you buy that new business property.
1. Can You Afford the Down Payment?
This could very well be a very simple discussion – either you do or you don’t. If you don’t have sufficient capital reserves to allocate a sizeable amount of up-front cash for a down payment and closing costs, then the buying option is off the table. There are a lot of benefits to owning your own property, but if spending the cash on a down payment is going to sink your company, it’s not going to help having that building.
At this point you have two options – either look into renting a new facility, or wait until you’ve saved up enough for a down payment without hurting your company’s bottom line.
2. What is Your Growth Trajectory?
If cash isn’t a problem for you, the next thing to consider is how much your business is going to grow over the short, medium, and long term. This will require you to be very realistic, because what you decide will impact what type of business property you buy.
Have you just landed a game-changing deal? Or, are you expecting a more measured and incremental sales growth trajectory over the next three, five, and 10 years? Are you outsourcing more components of your business, or are you continuing to grow your internal capabilities? Do you have new category-leading products in your pipeline, or are you simply refreshing your existing offerings?
The speed and scale of your estimates, and your answers to these questions, will directly impact your decision regarding office space, as large-scale customer orders may require you to immediately purchase a new business property, whereas a measured growth could allow you to lease or rent a space for a while.
3. How Long Do You Plan on Staying in Your New Building?
This might sound like a silly question because you haven’t even moved into the property yet. However, going in knowing how long you will probably stay will give you a better sense of whether you should buy, rent, or lease a facility. Think about your home mortgage for a minute. If you’re planning on spending money to refinance at a lower rate, you’re probably planning on staying at your home for years to come. The same can be applied to buying a business property. If you decide to put in a down payment and all the other costs and fees associated with buying a new office space, it’s probably going to impact how long you’re going to be staying there.
4. How Well Do You Like the Area?
Many small business owners make the mistake of buying a building only to realize later that they don’t like the location because of insufficient parking, undesirable traffic patterns, restaurant proximity, or other neighborhood-related issues. Be sure to take all of these factors into consideration and “try out” the facility as much as possible prior to committing to the purchase of a long-term asset.
5. How Good Are You at Fixing Things?
In real estate – whether homes or office buildings – there are two popular descriptions of facilities at either end of the spectrum: “move-in ready” and “handyman special.” While typically more expensive, move-in ready buildings do offer the convenience and assurance of a relatively carefree ownership experience, at least in the short term. In contrast, handyman specials will require a lot of work to become a functional work place. When evaluating facilities, small business owners must be very honest about their abilities to fix things, and/or their patience for the hassles of dealing with an aging infrastructure.
6. Are You Ready to Take on Additional Responsibilities?
As a supplement to the handyman question above, small business owners need to be reminded of the extra responsibilities (and costs) that go with buying versus renting office space. Whereas renters can simply call up the landlord when there’s a problem with a leaky roof or to fix an electrical issue, as the owner, the responsibility for every aspect of caring for and maintaining a building falls on you should you choose to purchase the property. While some will readily accept these tradeoffs, other business leaders will see it as a distraction from their core competency and decide to effectively “outsource” the handling of these problems by opting to rent versus own their property.
7. Do the Risks Outweigh the Rewards?
For those who weigh all of these issues and decide to proceed with the purchase of a building, the potential for upside benefits can be significant. In addition to the enormous sense of satisfaction stemming from the simple pride of ownership, there are many other direct and tangible rewards, including numerous tax benefits, such as allowing the capital appreciation of the property to count towards the business.
In addition, if the property is larger than what is immediately needed, you can sublet a portion of the building, which can in turn help offset the cost of the mortgage and/or provide additional funds to help with the monthly cash flow of the business. Finally, the purchase of a facility which is larger than currently needed provides you with the confidence and assurance of knowing that, should there be a significant increase in demand, you can quickly scale your business and add capacity in the future, without having to worry about moving to another location.
If Buying Business Property is in Your Future, It Helps to Have a Guide
At Blackwolf Commercial, we take pride in helping business owners, like yourself, find just the right business property. We’ll work with you to make sure your needs are met, and answer any of the hard questions you might have before you make a purchase.
Contact us today so we can help you find the best property for your business.