Considering buying a building?


To buy or not to buy a building? That’s the question for many business owners. The economic news over the past few years has been anything but positive, but if you operate a growing business and are considering purchasing commercial property, the news may actually be good. It’s true. With the present-day uncertainty in the commercial real estate market, there’s no shortage of bargains available.

For some businesses, purchasing a commercial property offers unique advantages, including:

Equity.

Many business owners choose to own their own buildings to gain greater control of costs. This is particularly important, as many businesses are facing rent increases.

Tax savings.

Owning a commercial building can provide tax write-offs that will reduce taxes on income. Specifically, you can deduct interest paid on loans, repair costs for building maintenance and similar expenses. These savings are an incentive for large businesses to make an investment in property. (Consult your tax advisor.)

Asset growth.

You have an asset with the potential to grow in value, thereby making your business more valuable.

Some of the disadvantages of buying can include:

Risk.

In the event your business experiences financial difficulty, you might have difficulty making payments. If you default on your loan, your business might not have a place to operate from and you could severely damage your credit.

Drained capital.

You will need a good down payment, which may tie up capital and drain your cash flow.

Less flexibility.

If you have a mortgage, you won’t have as much flexibility to move your business to a new location.

Maintenance costs.

Of course, owning a property requires maintenance and upkeep.

Questions to ask before purchasing a building.

The decision of whether to purchase a commercial property depends on the unique needs of your business. In general, here are some things to consider:

What is the projected growth of your business?

For many businesses today, purchasing commercial property is a great way to manage future growth. The challenge lies in predicting that growth, since the last thing you want to do is purchase a property that limits your potential.

Can you afford the mortgage?

One of the most important questions you’ll need to ask is whether you’ll be able to afford the monthly payments. Calculate what they will be and then compare that with the cost of rent.

Do you need business write-offs?

Many businesses choose to own property to be able to write off a portion of the building’s cost each year in the form of depreciation. You could also buy the building with your personal funds and then rent it to the company.

The important thing to remember is that purchasing commercial property can be a smart choice, just remember to proceed cautiously.

 

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