As a small business with plans on buying a commercial building, there are a number of important things to consider. You may have decided that your own property will provide more stability and cost benefits than leasing space, but like any other major investment, it involves risk. If you make bad choices, it reduces your ability to keep up with expenses and still make profits. Here are some important factors to investing in your own commercial property.
Type of Property
Before you start searching, you should make a decision on the type of property that works best for you. This can depend on the size of your organization, but you should also think about future growth. When buying an office building, allow enough square footage to allow for projected expansion over the next few years. You may also find it to your advantage to have warehouse or industrial space attached.
Location
Even for an online company, the location you choose can make a big impact on your reputation and bottom line. If you depend on local traffic, you need a location that’s easy to find and easy to identify from the street. If you entertain clients, you want to look upscale and professional, so avoid bad neighborhoods no matter how cheap the cost. Consider the nature of your customers; a discount company may not work in a wealthy area. The reverse, a high-end company in a poor neighborhood, may be a recipe for disaster.
Value
Once you’ve narrowed your search to specific property types in promising locations, a proper conveyancing process includes determining fair market value. If you pay too much, you’re not only wasting money but are less likely to recoup your investment should you decide to relocate in the future. Before signing away your future, have your conveyancing solicitor get a fair appraisal. You might also want an inspector to determine whether there are any hidden repairs or upgrades that will be necessary.
Operating Costs
Be sure you have considered all the ongoing costs and how they affect your budget. In addition to any mortgage payments and accrued interest, you’ll be paying property and possibly sales tax. And don’t forget to set aside funds for ongoing building and landscaping maintenance. Building security is also an important but continuous expense. You may consider buying commercial real estate with excess space that you can lease to defray costs
Insurance
Insurance is an inevitable part of the conveyancing process. Most businesses will want one or more policies depending on the nature of your industry, but insuring your physical assets is a priority. Liability insurance in case someone is injured on the premises is also high on the list. You’ll also need to be in compliance with safety regulations to protect your employees.
Due Diligence
Whenever possible, take at least 30 days to accomplish your due diligence before making any offer. This may involve a conveyancing solicitor, but you’ll have to understand if there are any outstanding liens, violations, or pending changes to zoning ordinances. You should also be aware of any special building permits or restrictions enforced by your local authorities. This could be involved handicapped access, fence heights, or limits to on the size and number of signs. You should also investigate the history of the prior occupants or owners. In any case, you’ll want your lawyers to look over all agreements or contracts before you sign.
Financing
You should have a good understanding of your credit worthiness before applying for a business loan. Traditional lenders will require a great deal of documentation regarding your financial and payment histories. They may also want to see income projections and require environmental evaluations or other assurances. Have your accountants draw up all the necessary figures and projections to come up with a dollar figure you can afford.
Don’t be overly optimistic. There will very likely be costs you didn’t plan for, or the occasional financial emergency. Even if you can secure financing, consider how a big loan will affect your future borrowing ability. You might also look into alternatives like acquiring investors. Check with your lawyers for the legalities involved.
Buying commercial real estate may be an important part of your vision for your company’s future. But it’s important to recognize that it involves higher expenses and therefore greater risks. If you don’t rush into it, but treat your property purchases as a calculated and profit-driven strategy, you’ll be more likely to make the right choices.
