Read this before buying commercial real estate for your business

The location and operation of commercial spaces are crucial factors in running a business. Whether you run an office, clinic, factory or retail store, you will have to decide whether to buy or rent.

Renting a property sometimes has a negative connotation with business owners. They can be influenced by their network or by a broker who has this mindset. But in my experience, over the long term, most business owners prefer to rent rather than buy the commercial property they operate on.

Yes, most real estate assets appreciate in value over time. That said, it’s important to consider the downsides of owning your commercial space.

YOU NEED EXPERIENCE IN REAL ESTATE INVESTMENT

Many business owners who purchase their commercial property are simply looking to eliminate their rent payment, thinking they will save money on a monthly basis. But some brokers can easily spot amateur investors. You might end up paying above-market rates for the assets, not to mention the upfront expenses. It’s a fine line between wasting money and saving it.

YOU MIGHT END UP IN A BAD PLACE

Suppose you buy a property and realize, a few months or even years later, that your business would do much better somewhere else. You will probably feel torn: you have probably spent a significant amount of money to buy the property, which makes it difficult to part with it. You may even have spent so much that you cannot afford to rent another property. It is a difficult situation to trap.

YOU COULD OPEN YOURSELF TO RESPONSIBILITIES

If you decide to buy the commercial property, you could unfortunately be liable in the event of an accident. Keep this in mind when choosing your insurance options: you want to be protected against possible charges.

For these reasons, leasing may be easier for you as a business owner. Many leaders find they prefer to focus on the business itself and let a property manager take care of things like location and responsibilities.

AMORTIZATION OF CAPITAL

Even though we associate real estate properties with price appreciation, the possibility of property depreciation cannot be ruled out. When buying a commercial property, you need to consider the aging process of the building and the vagaries of the market. Liquidity could be an issue while you play the waiting game for property appreciation.

In a nutshell, unless you have experience investing in commercial real estate, are 100% certain of the value of your building’s location over the long term, and are at comfortable with taking on some responsibility and risk, then leasing may be the right solution. option for your business. With a lease, you have the flexibility to move if you need to, you can take advantage of certain tax deductions, and you’re freed from the responsibilities that come with ownership at every level.

More time saved; more money to earn. It’s business.


Lane Kawaoka is a podcaster for SimplePassiveCashflow.com & Property syndicator of 900 million assets under management (more than 6,500 rental units).

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