There are many pros & cons of buying a commercial real estate building. With many factors to consider when making the decision whether to buy a commercial building or not. Below is a brief outline of some pros and cons when it comes to buying a CRE building.
The Top Five Reasons to Buy a Commercial Real Estate Building:
1. Building Equity
2. Appreciation
3. Help with Mortgage
4. Tax Benefits
5. Control
Building Equity:
Equity is the difference between market value of a property and what you owe. The more equity you have, the more opportunity to use that equity for other things, such as upgrades to the building or upgrades to your business. Or maybe even use that equity towards purchasing additional buildings.
Appreciation:
No, we are not talking about “expression of gratitude” but rather we are referring to the fact that over the time of owning a building, the value can increase. Increased value flows right into increased equity (see above). However, to get the most appreciation possible, it is important to look at whether a location is growing or dying before purchasing
Help with Mortgage:
If you purchase a building with additional spaces to lease out to other small businesses, those businesses will pay their rent and ultimately those rent payments will help pay your mortgage and help fund building upgrades. Another benefit to buying a building with additional space is that as your company grows, there is opportunity to eventually expand without having to relocate your company.
Tax Benefits:
Speak to your CPA to determine what could benefit you. Ask about interest deduction and ask about depreciation. Both will most likely be beneficial to you in some way.
Control:
When owning a building, you are the landlord. You can control what you do with your building and control your own property. Therefore, you can utilize the property for what you want to use it for (providing its legal).
The Top Five Reasons Not to Buy a Commercial Real Estate Building:
1. High Up-Front Costs
2. Other Costs
3. Qualifying
4. Risk
5. Managing Your Building
High Up-Front Costs:
When purchasing a commercial real estate building, you should always plan for up-front costs as they may affect your ability to help fund other future financial and/or business issues. Thus, a business owner should always ask themselves if it’s okay to use the cash, prior to unnecessary spending.
Other Costs:
Various other costs associated with owning a building will arise, such as loan fees, closing costs, legal fees, tenant improvement costs, building capital improvements, and many others. Ask your trusted Broker for a checklist to ensure you are prepared.
Qualifying:
Lenders look at a variety of factors to see if you qualify for a loan. Lenders will look at both business and personal financials to see if you and your business are a good risk to take.
Risk:
Owning a building will always come with additional risks. You will be responsible for building repairs (both major and minor). Additionally, there is always liability risk from tenants and visitors of your property. Here is where we say that proper insurance is key.
Managing Your Commercial Real Estate Building:
As a commercial property owner, you will be responsible for many things which can be hard to keep track of and manage. Therefore, it is important to consider hiring a professional property management company. They can assist with accounting, vendors, and tenants, thus making life as the property owner much easier.
If you are ready to buy or have questions about buying a commercial real estate property, contact a professional, licensed Commercial Real Estate agent (for Arizona, consider using our team) to ensure you can find the best fit for your needs. If you are interested in learning more about property management options, please explore our favorite Arizona sister-company, Mode Commercial Property Management.
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