The Business Owner’s Guide to Buying a Building
When you look around your office and realize you need more room, it could be time to make the leap from renting to buying. This is particularly true if you’re renting almost an entire building for your company. The first time you consider buying commercial real estate can be a bit frightening. A house is a big investment—a building is a bigger one. How do you know if it’s the right time to buy? Can your business handle the transition?
Before we continue, take a deep breath. This article will answer most of your questions. Have more? Give me a call, and I can walk you through the process.
The Benefits of Owning Over Renting
There are a wide variety of benefits to buying an office space for your company instead of renting it. When you rent a space, rent goes up every year. When you own the building, you have a mortgage payment that stays at a flat rate. Your payment will stay the same each month, with no increase.
Assuming the value of your building doesn’t go down, the principal balance of every payment that you make on your building mortgage goes directly back to you as equity on the property. Your building is an investment. You can sell the building after your company outgrows it or rent it out for a (relatively) passive source of income.
Another benefit of owning a building is the flexibility and independence that comes with it. You no longer need a landlord’s permission to make changes. When it’s your building, you can make the space entirely your own.
When Is a Good Time to Make the Leap?
Knowing when it’s time for your company to buy a building can be difficult. Each company is unique and needs to make the decision based on their own individual values. However, there are some indicators that can help tell a company when it’s time to buy.
Some companies have specific space requirements that can make it difficult to find the perfect property. For example, if you’re looking for a landscaper or contractor yard, you may have to wait quite some time for a space to become available. The next time a space is for sale, it’s a good idea to jump on the opportunity and buy. Otherwise, you could find yourself waiting another five or six years for the next opportunity.
Another indicator that it’s a good time for your company to buy a building is the size of your staff. If you find yourself needing to rent out an entire building to house your employees, then that’s a pretty clear sign that investing in commercial real estate would be a good idea. A five-person company probably doesn’t need to buy a building. But a 50–100-person company probably should.
The bigger the building you need, the easier they are to buy. Small office spaces are hard to come by. Typically, if you’re looking for a 3,000 to 6,000-square-foot building, you’re looking at townhouses or office condos, not an entire office park. Before trying to buy a building, consider the size you need. If it’s on the smaller end, you may get a nicer space by renting part of an existing office park.
Other indicators include a generally financially healthy business. You need to have more income than debt, a healthy balance sheet, and an appropriate amount of liabilities compared to your assets.
What to Watch Out for in the Buying Process
The buying process isn’t simple. There are plenty of pitfalls to avoid. Before buying the property, make sure you have a very thorough inspection done. Get a roofer on the roof. Have an HVAC professional look at all of the ductwork and heating and cooling systems. Make a list of all of the major building systems and have each one inspected thoroughly by an expert.
Make sure you fully understand your loan. A commercial real estate loan is different from your typical residential loan. The bank that took care of your home loan isn’t necessarily the right bank to work with for your commercial loan. Before choosing a bank, shop around to find the best bank for your business.
One common mistake is failing to check zoning laws. A building might be the perfect setup for your manufacturing warehouse. But before you get too excited, check local zoning laws. The last thing you want to do is buy a building, fit it out for your company, and then discover your business isn’t allowed to run in that area.
Why You Need a CRE Agent
While you aren’t required to work with a CRE broker throughout the process, it’s highly recommended. CRE brokers have access to information available exclusively to agents. There are very few sites that list commercial real estate for free.
When you work with a CRE broker, you get to work with someone who has expertise, knows the market, and knows what a fair price is. Buying a commercial building isn’t an easily acquired or well-known skill. Attempting to buy a commercial building without professional help is similar to trying to build your own home without ever having used a hammer.
At AushCo, we live and breathe Frederick and Hagerstown commercial real estate. We have a deep understanding of the CRE market based on decades of experience in the area. Buying commercial real estate doesn’t have to be painful, and when you work with AushCo, it won’t be. If you’re looking into making the leap from business owner to building owner, get in touch with us today.
We’re happy to help you find the best building for your business.