Commercial real estate investing is unlike residential property investment on many fronts.
First off, most of the people investing in residential properties intend to either – live in the property themselves or to earn rental income by renting out to the property through tenants. This applies to both stand-alone single-family homes and multi-family properties.
Commercial real estate investing, on the other hand, is a different ball game as these are highly elastic properties and your commercial real estate investing success is much determined by the overall economic conditions of the state.
For investors who fix and flip properties, both residential and commercial properties are pretty much the same. However, as a buyer of residential property of commercial property, the two scenarios are quite distinct.
While investing in residential properties as a buyer or an owner is an easy decision to make because everybody at some point of time wants to buy a home to live in, purchasing commercial properties for the sake of running one’s business is a difficult decision.
While the majority of the business owners choose to rent out commercial spaces over purchasing them, it can be even harder for you, as a business owner to think about buying a commercial real estate property.
Should you buy a commercial property for running your business? Or is it better to rent it out?
Well, it depends. It depends on the nature of your business mostly and how soon your business income will be able to recoup the purchase costs of the property. But on average, experts suggest that buying commercial properties is an excellent idea for business owners for a couple of reasons.
This blog explains a few reasons as to why you should buy your business space instead of renting it. However, take note that this is no universal rule and buying your business space is not always a great idea and that there are exceptions.
These exceptions are explained in the latter part of the blog. Skip to the last section if you think your business might be an exception to the general rule.
Reasons to why it makes sense to buy your business space as opposed to renting it
Reason #1 – Adding commercial real estate to your retirement portfolio is a solid plan
While most people who plan and invest in their retirement portfolio generally do so by investing in the stock market, investing in commercial real estate can be lucrative too.
Besides, we are all aware that the stock market investments are highly fluctuating and it’s impossible to be assured of safe returns. Instead of putting all eggs in one basket, it’s always an excellent strategy to diversify your investments.
Retirement savings can be a great source of funds while you begin your commercial real estate investing.
And as the first step, it’s a great idea to buy the property you wish to house your business. If you’re running a business already, that’s plus one reason for you to purchase the property.
You may not be sure on how long your business will run, but as a matter of fact, nobody is. Buying it is still safe as you can always sell the property at much higher resale values on a later date if things don’t work out in your favor.
If not anything, even in the worst-case scenario – you will recover more than what you invest today after a period of 3 to 4 years because unlike stock markets, real estate markets are less fluctuating and they generally always appreciate in value (unless there’s a real boom in the country’s economy to the extent that the real estate markets will crash to ground which however is highly unlikely).
Reason #2 – You can leverage from the benefits provided to owners on their owner-occupied properties under different loan programs
Different loan programs under the USA Small Business Administration grant various bonuses to business owners who own their properties.
In other words, as a business person, you can have multiple benefits by just opting to purchase the property in which you operate your business.
The most exciting feature here which most people overlook is the terms which state that you don’t need to fully operate in your business space that you intend to purchase.
You are required only to run your business operations, covering the 51% of the area and are always at liberty to rent out the remaining 49%.
What does this mean to you as an owner? You can own your property and also earn a good rental income on the portions of the property that you do not use for your business, whilst having full ownership over the building and reaping all the benefits offered by SBA loan programs. That’s happy news.
And as an owner, if and when your business does expand, and you find a need to expand your area of operation, you are always at liberty to use the rest of the building after the lease or rent period of your tenants terminates. So, that’s a win-win for both cases.
Reason #3 – You can totally cut down your monthly rental overheads
You don’t have to pay rent to your landlord when you purchase the commercial space you conduct your business.
A total no-brainer, right? Although it does seem like a no-brainer, it is astonishing how most people do not think about it at all and continue to keep paying rents for their business spaces even after a long period of 10 to 15 years have passed.
Ask any small business owner about the number of years they’re into the same business at the same location and how much have they paid as rent on their property?
The answers might take you by surprise. More often than not, you’ll notice that these owners have ended up paying more than the property value itself in the long run, without even realizing it.
They could have bought the property in half the price they’ve incurred as a rental expense over the years. If you do not want yourself to be in a place like that, after a few years – you should consider buying your commercial property.
Instead of merely spending a significant portion of your business income as rent, you’ll be creating wealth for yourself if you choose to pay the same on purchasing your property.
And how do you do that? By procuring commercial real estate loans that’ll spread across a few years.
After completion of the loan period, you become the owner of the land, and you have something to call “yours.” Bottom-line: Instead of making your landlord more productive by paying rent on your property when you know you’re going to continue in the same business line for some years, buy it and direct this expense towards creating wealth for yourself.
Reason #4 – Commercial real estate loan rates have surprisingly been low!
Unless you already have a lot of money to buy your property through a single big down payment, you’re going to have to look for a suitable Commercial real estate loan.
And surprisingly, and a pleasant one at that – the Commercial real estate loan rates are low! Very low. Residential loan rates are generally three folds higher than the commercial loan rates.
These low rates make it even easier for you to choose and go ahead with purchasing the property than renting it. And from the past many years, this year has been one of those years with the jaw-dropping loan rates.
So, you don’t have to worry about the “extra” costs you’ll be incurring in order to purchase your property because there have never been rates as low as is now!
Reason #5 – You can rent your commercial space to the successor of your business!
Last big reason as to why you should buy the space you operate your business in is – you can rent it out to the successor of your business.
Employees retire, and people in business need to stop working actively too, after a point of time. And when your time comes, and you have found a potential successor of your business, you don’t have to sell your property too along with your business.
Instead, you can rent the space out to your successor, and that becomes a new income stream for you altogether. How’s that for a sound retirement plan? You can then lay back during your old age while your financial needs will be taken care of by this commercial space you own.
Bottom line: Owning your commercial property is a win-win right from the start, up until the time you wish to stop working actively in your business.
These are five good reasons why you should seriously consider purchasing your commercial space as a business owner. Browse through our various plans for Commercial real estate loans and feel free to get in touch with us for any queries on Commercial real estate loans, what kind of loan best suits your individual financing needs and more. We’d be glad to assist.