If the opportunity arises, should small business owners consider buying their commercial locations? More and more business owners today are saying “Yes!” when they compare the advantages to their business models.
For a business that has been open for several years and is established in its community, buying the property is a great way to ensure a long, stable future, but some business owners still see it as too risky when that may not be the case.
What are the pros and cons, or as we would rather call them, advantages and challenges, of owning a commercial space?
Advantages:
Fixed costs for the foreseeable future. Leases can fluctuate, and when they change, they rarely go down. With a mortgage, you can count on a set, predictable expense far into the future.
No more landlord. Landlords can change the rules with every lease renewal if they choose to, leading business owners to unforeseen expenses for changes that don’t benefit them. They can also raise the rent or even evict businesses if they want someone else to have the space.
Subletting provides additional income. If your location has extra space, you can sublet to other local business owners to increase your income, if you’re willing to be a landlord yourself.
Equity is power. Equity is how much the property is worth minus how much you owe. In other words, it’s how much money goes into your pocket if you were to sell it and pay off the remaining mortgage. Building equity opens doors for more growth for your business, like renovations, additional locations or even additional commercial properties.
Ownership has tax advantages. We are not CPAs, and you should consult a tax professional to discuss the specifics of your business, but overall, the tax savings involved in owning a property instead of leasing it balances out the challenges.
Challenges:
Expenses built into your lease are yours now. For your landlord, your lease included the costs of property taxes, maintenance and repairs, insurance, security, parking and more. These will have to be built into your business budget going forward.
Maintenance is on you. The owner is the steward of the property’s value. The time and money involved in keeping the property in good shape and up-to-date, and making improvements, all comes from you. You also have to navigate the permits required to make any changes to your space.
For an established business that is past the startup phase, the benefits outweigh the risks much of the time. All variables considered, real estate property appreciates over time, period. If your capital is solid and you can qualify for a fair, affordable loan, purchasing your commercial space is a valuable long-term investment in both your business and your community.
Contact a member of the Lendistry team to apply for a commercial loan.