Benefits of Owning Your Business Property
When it comes to your business facility, you might consider buying a property rather than renting it. Owning a business property means more responsibilities and expenses but it is a great way to build equity and increase the value of your business. You can weigh the following benefits against the additional work and planning they require and decide what is best for your business.
More Control Over Your Business Facility
The most immediate benefit of owning your business property is having control over the space where you conduct business. When renting an office or building, you have to comply with rules set by the landlord or company that owns and maintains it. This can restrict how you design your business environment for your employees and your customers. Owning the property gives you more freedom to manage, furnish, and change your business space as you see fit.
When renting a property, you might not have the option of choosing your utility companies or service providers if the landowner already has them set in place. When you have full ownership of the building, you will be responsible for selecting and paying for those services. If having more control over electricity, water, heating, landscaping, etc. helps you create the environment you want your customers to associate with your business, it will be worth the workload and expense.
Lower Costs with Fixed Mortgage Payments
Buying a commercial property will likely be one of the largest expenses associated with running your business. You could pay up to 40% of the cost up front for your down payment, and you should plan to have enough cash for the first six months of mortgage payments available when you purchase. However, like starting a business, buying commercial property is an investment that can create value over time.
Overall, your building costs are likely to be lower and more consistent than renting a property. Rental fees can fluctuate and drastically increase, making your monthly expenses unpredictable. When you own the property, your monthly fees will consist of fixed mortgage payments and maintenance costs.
An Investment to Support Future Retirement
Unlike renting a property, having ownership of a property lets you benefit as the building’s value appreciates. Over time your property will likely increase in value and can end up being worth more than the dollar amount you paid for it. The value of the property can be affected by external factors, such as market conditions, location, and interest rates.
If you are financing the building with a loan, your down payment and monthly payments will contribute toward your equity. If you later decide to refinance or remarket the property, the equity will be the difference between the property’s fair market value and the remaining loan balance.
Generate Rental Income Now
Another way your commercial property can generate value is by leasing space to other tenants. The resulting monthly rent is another source of income that can offset some of the maintenance and insurance costs. Being a landlord brings another set of responsibilities so make sure you have the capacity to manage a rental property on top of running a business.
Keep in mind that if you are financing the building with a commercial loan, most lenders will require 15% equity if the property is owner-occupied, and 25% equity if the property is not owner-occupied. For a commercial property to be considered owner-occupied, the owner must occupy more than 50% of the property.
Don’t Miss Out on Tax Advantages
There are several tax advantages that come with owning commercial real estate. You can deduct property depreciation and interest as well as furniture, fixtures, and equipment. Many tax breaks will still apply even if you lease the property. The best thing you can do is consult your CPA or financial advisor to learn more about the tax benefits available to you in your state for owning commercial property.
The benefits of owning your business property will boil down to whether you can afford the building and its added expenses and how much control you want over your business space. The responsibility and cost of owning a commercial property can be a worthwhile investment for a business. There are multiple ways you can build equity and increase the value of the property. But before you purchase or finance commercial real estate, make sure you are aware of all the expenses you will shoulder, from insurance to utilities. You should also be aware that owning your business property is an investment that could take 10-15 years to reach the value that will fund retirement or other ventures. To learn more about financing and owning commercial real estate, visit PlainsCapital.com.