Do You Own A Commercial Building/land?

MKamis

I'm curious to know how many of you own a commercial building or land to run your business out of. I am setting a business goal to be out of my garage(s) at home, and into a commercial space within 5 years or less. I don't NEED it to operate, but I know that if I want continued growth, it will come into play down the road. I feel very strongly about owning a building (doesn't have to be big, just mine) as an extra means of generating some money when retirement is closer (still 37 years away).

If you do own a building or commercial space, what are some of the unexpected benefits/problems you have experienced with this?

Second Look

I'll be watching this thread too, as I'm in the market for a small commercial property. It would have to be a small house on a busy road, preferbly something with a lawn out front. Nicely re-done on the outside and with some signage, it would be great advertising, and offer tool storage as well.

Properties like this that need some TLC run about 150k-200k in my neighborhood, but they don't come up too often.

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Handyman and Home Repair Specialist in Rhode Island
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MKamis

I started thinking about this more because my brother-in-law is looking at a 34,000 s.f. riverfront commercial building which costs $200 a month more than his current rent! The real eye opener for me is that he only needs 1/3 of that space! That could be some serious rental income (if he can keep it rented), but I'm sure there are other costs associated with a venture like this, and I want to learn all I can first.

SeanATL

There certainly are other costs such as insurance, property taxes, etc...

But, more importanty there are several other things you need to consider.

If you went around and asked a bunch of businesses whether they own their building, many would tell you no. Do Wendy's, Home Depot, etc own the space they are in? No.

You can't look at business space like a rent/own situation like you would for your personal residence.

If your business is steady and you know the space you are buying will be enough for the next 10 years or more, buying a building my be a good option.

The risk is if things don't go as planned....whether good or bad, owning something can put you in real bad shape.

If you grew a ton and needed more space....now you've got to sell your building or lease it....and that can take a long time to get done. You just don't put a sign on the building and sell it in a month when you're dealing with commercial real estate...unless it's in an unbelievably hot market.

And if things go bad and business turns south.....same thing.....now you own a building you can't pay for. You can usually break a lease with a penalty, but you can't break a mortgage until you sell the building....which could take a year....that would ruin you if things went bad.

Last thing....I don't know if your business requires a lot of capital to run, but buying a building would really limit your ability to have a line of credit or any other type of access to debt to run the business. Much of your credit will be tied up in your building......if you don't pay cash for the building.

Those are all things to consider. I would certainly talk to an attorney or someone who has experience with dealing with small companies. Don't talk to a real estate agent about it...they will obviously be biased.

Mike Finley

Sean makes a lot of good points about protecting yourself from the downside.

However, also consider the upside. You can't run a successful business long term by following strategies that heavily favor the down side of every issue, you'll never get where you want to go.

People who talk about wanting to create a business that is sellable someday - appraisable assets are the easiest thing show that a business is more than just you and your truck.

I know quite a few people who when it was time to retire, retired 100% off of the realestate. The land they had purchased when they were younger and used to run their business out of which was relatively cheap when they bought it had become extremely valuable as the city had grown toward it and filled around it. Making their property worth millions. Others had simply long closed their business but kept the property and rented it out for the last 20 years...

Lots of big financial advantages to owning property for your business, lots of write offs and long term financial rewards.

Smartest cookies here will figure out how to buy or build something that will work for them and have additional rental capacity which will actually cover the costs of their own use and have the best of both worlds, free rent and the financial appreciation aspect.

Luke

I own the commercial building that my business is located in and my company rents the space from me personally. This allows me to adjust the income from time to time, I pay rent to myself if it is there and when we have a slow period I can delay the payment until the cash flow improves. I'm lucky in that our building is large enough to have three additional tenants and the space is able to be modified to suit the needs of the tenants. This also allows me the flexibility to grow my business if I want to - I can decide to keep additional space when the tenant's lease expires. I just opened up a small millwork/cabinet shop in our existing shop space but I may want to grow into the adjoining space that is currently being used by another tenant and I will be able to do that once their lease runs out. Another typically underappreciated benefit is having the office out of my home. I find that it is easier to leave work at the office instead of living the 24/7 existance that is typical of a home-based business. When I want to do some weekend work in the office, I leave the house, drive 5 minutes and I can get a lot of work done in the quiet environment without all of the distractions that home-life presents. It all comes down to finding a good building at a good price which isn't always the easiest thing to do but be patient - they are out there. I would highly recommend trying to find one that does allow for additional tenant space if possible. Even if it doesn't cover all of the expenses, the regular additional cash flow can be extremely helpful at certain times of the business cycle. One caveat....you will find yourself filling up all the available space with stuff, and not all of it good stuff. It is easy to not throw out things when there is empty space available.

Mud Master

I am in the process of buying commercial property to house my admin. staff, since I am currently in expansion.

I do rent a warehouse in a gated & secured facility for my shop which is 10,500sf and runs me $2500.00 every 2 months, plus I share half the dumpster bill with a cabinet maker. When I relocate to a commercial office, the back will have a shop about the same size, maybe larger that will serve as my permanant shop for all my equipment.

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Second Look

Ahh, but McDonald's does. They're more a property holding company than a burger company. If you buy right, rehab it in your spare time, hold for the long term, the tax and investment benefits can be significant.

__________________
Second Look home improvement www.SecondLookHome.com
Handyman and Home Repair Specialist in Rhode Island
RI Licensed Lead Safe Remodeler/Renovator, RI Registered & Insured Contractor

Second Look

That rent wouldn't exactly be free, it would be one's reward for investing in and managing the property. I own residential rental property and I put 20% down to buy them. That money could be otherwise invested in stocks, Treasuries, my home improvement business, paying down my own mortgage or some VERY nice vacations. The rent I collect is far from "free", I earn every penny of it.

A multi-unit property means there are other signs on the building that distract from your own. Even if it's a non-competing business, the signage competes for the viewer's attention. A single unit building seems like the way to go.

__________________
Second Look home improvement www.SecondLookHome.com
Handyman and Home Repair Specialist in Rhode Island
RI Licensed Lead Safe Remodeler/Renovator, RI Registered & Insured Contractor

tnt specialty

I'm going the other direction, (been there; Done that). We sold our industrial lot and buildings a couple of years ago, (2.5 acres), and downsized. I now work out of my home office.

If you need it, and can utilize it to it's full extent, I would absolutely reccomend purchasing as soon as you can afford it. Your building equity, (making money), instead of throwing it away on rent. It's a no-brainer. The industrial/commercial real estate inventments have been good to us. Just make sure you do the typical "feasability" studies that suite/fit your needs.