Read This Before Buying Commercial Real Estate For Your Business
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The location and operation of commercial spaces are crucial factors in running a business. Whether you operate an office, clinic, factory, or retail store, you will need to decide whether to buy or lease.
Renting a property sometimes has a negative connotation with business owners. They can be influenced by their network or by a broker who has that mindset. But in my experience, over the long term, most business owners end up preferring to rent rather than buy the commercial property they operate on.
Yes, most real estate assets increase in value over time. With that said, it’s important to consider the downsides of owning your commercial space.
YOU NEED REAL ESTATE INVESTMENT EXPERIENCE
Many business owners who buy their commercial property are simply looking to eliminate their rent payment, believing they will save money on a monthly basis. But some brokers can easily spot amateur investors. You could end up paying above market rates for the assets, not to mention the upfront expenses. There is a fine line between wasting money and saving it.
YOU COULD END BLOCKED IN A WRONG PLACE
Suppose you buy a property and realize, a few months or even a few years later, that your business would be doing much better in a different location. You would probably feel ripped apart: you probably spent a significant amount of money to buy the property, which makes it difficult to part with it. You might have even spent so much that you can’t afford to rent another property. This is a situation in which it is difficult to be trapped.
YOU COULD OPEN YOURSELF TO RESPONSIBILITIES
If you decide to buy the commercial property, unfortunately you could be held liable in the event of an accident. Keep this in mind when choosing your insurance options – you want to be protected against all possible costs.
For these reasons, leasing may prove to be easier for you as a business owner. Many executives find that they prefer to focus on the business itself and let a property manager worry about things like location and responsibilities.
CAPITAL DEPRECIATION
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 must take into account the aging process of the building and the vagaries of the market. Liquidity could be an issue as you play the game of waiting for property appreciation.
In short, unless you have experience investing in commercial real estate, are 100% sure of the value of your building’s location over the long term and feel comfortable with certain responsibilities and risks, then leasing may be the right solution. option for your business. With a lease, you have the flexibility to move out if you need to, you can take advantage of certain tax deductions, and you are free from the responsibilities that come with ownership at all levels.
More time saved; more money to be made. It’s business.
Lane Kawaoka is a podcaster for SimplePassiveCashflow.com & Real estate agent of AUM 900M (6,500+ rental units).
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