Every few years, the real estate industry suffers from a crash that leaves small and mid-sized business with a dilemma: is it better to own or to rent a commercial property. Buying commercial property is a complex business, which makes it difficult for experts to maximize their investment value. There is no one-size-fits-all strategy. The following guide takes a realistic approach to solving the dilemma of whether you should buy or rent a commercial property.
Deciding to Buy versus Lease
While weighing your option, you should understand the risk involved. Given below are some of the involved risks:
1. Location may backfire
You probably have heard the saying “today’s hot can become tomorrow’s not.” This common saying applies to commercial properties Trendy locations have a high chance of quickly becoming worthless. Even location that do not seem trendy upon first appearance have the chance of “going out of style” like a trend. There is a possibility that market may bust, thus making possibly any area you choose to become undesirable.
2. Loss of liquidity
It often is not easy to sell your property. A business that owns the piece of real estate needs their real estate to be worth some money to at least some thing that, if needed, can be converted to cash.
3. Tenuous cash flow
If you are business that owns property that is being rented out, you cash flow will be compromised if a tenant stops paying rent and your property requires unexpected, expensive repairs.
Assembling a Team of Experts
Not everyone is a commercial real estate expert. Therefore, it is important to get connected with team of experts who can help in determining the right locations, the right time for buying and selling, and the nuts and bolts of the deal. To create an expert team, you may require the following people:
1. Accountant: He or she can help you analyse the tax and operating benefits and figure out what you can afford.
2. Lawyer: He or she can negotiate with the lender and seller on your behalf and help you to complete the transaction.
3. Commercial Broker: He or she can help you identify the potential properties that you can afford.
4. Mortgage Broker: He or she will sort out all of the financing matters for the property.
Identify the Right Property
There are several factors that need to be considered when making any real estate purchase:
a. Location: Location matters a lot, as the location needs to be convenient for your vendors, suppliers, workers, and, of course, your customers as well. To determine the proper location, keep in mind what kind of business that you are running in addition to how accessible the location is to the highway, rail lines and shipping lanes.
b. Physical Condition: The selected location’s physical condition should also be taken into consideration. Be wary of any wear and tear, environmental issues or any other potential liabilities.
c. Allowable Uses: Get the appropriate building for your business type. For example, manufacturing businesses require industrial space. Accounting firms require office space.