Many business owners start the new year with auspicious goals related to sales and market growth, but most entrepreneurs should add another checkbox to the 2018 business plan: owning their commercial property.
Today's business climate is particularly inviting for purchasing commercial real estate, and here are five main reasons.
1. Economy and interest rates
Despite a volatile stock market, interest rates are still relatively low, and business owners are in a great position to purchase commercial property for their companies. After some record gains in the stock market last year, many business owners have the access to capital for a down payment. In light of the volatility, it may make sense to reallocate some of your savings into a commercial real estate purchase that can help you build your wealth. With regard to interest rates, the only thing we can predict is that they will fluctuate – no one knows for sure which way. They remain low (particularly in the long-term historical context), but we can't be sure they will stay that way.
2. Locked-in costs and an asset that can appreciate
With the improving economy, landlords will be looking for new rental rates, and they aren't going down. When you purchase your commercial property for your business, you can lock in your monthly loan payment for years, even decades. For example, with an SBA 504 loan for owner-occupied commercial real estate, rates are for 20 years at a low fixed rate. Once you have purchased your commercial property, you can then reap the benefits of appreciation, particularly if you take a long-haul approach. There are no guarantees, but real estate is often a great long-term investment.
3. Control over your company's destiny
While you can sign a long-term lease for most spaces to set costs and preserve your location, you can't control many outside factors. If you own your building and want extra income, you can rent part of it. If you need more space, you can reduce your number of tenants. Such flexibility doesn't exist when you lease. Aside from rental rate increases, landlords can also sell their buildings to new owners who have different goals or might want a new tenant mix.
4. Favorable tax treatment
When buying commercial property, you also secure some tax benefits. Interest, depreciation and amortization expense, and some non-mortgage expenses can be deducted from your return. For an SBA 504 transaction, for example, most companies create a new operating company that will own the building. The business then pays rent to the operating company, which can take a number of expense deductions. Part of the business owner's income is legally sheltered from taxes.
5. The rewards of betting on yourself
Entrepreneurs all take incredible risks. Most leave comfortable positions to jump into the pool of economic uncertainty and start a business. They finance a startup with credit cards, don't take a salary for months or longer, and take on immense responsibility for their employees and partners. In some ways, buying your commercial property is another risk and another jump in the pool, but it also represents a tremendous way to earn a payoff for taking the leap to become an entrepreneur in the first place. When you own your building, you are creating wealth – for yourself, your family, and even your partners and employees. It's another bet on yourself that can lead to a well-funded retirement and another notch on your belt of success.
Buying a commercial building instead of renting is an incredible option for many small business owners. It can save money, create wealth and add to an entrepreneur's ongoing success.