With interest rates and real estate prices low in many places, consider whether buying property is right for your small business

By Karen E. Klein

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Q: My business lease is nearly up and I planned to renegotiate for a lower payment. However, now I’m wondering if we should try to buy office property instead, with interest and prices in the highroad that low?

—I.N., Prescott, Ariz.

A: Meet by your accountant and look at your long-term business plan towards help answering this verbal contest. Is yours a growing company likely to eventually need more space than you can offer to purchase now? Can you buy more square footage than you urgency and sublet till your company expands? If you outgrow the occupation, will you be able to sell it, or will you be happy becoming a commercial host?

Purchasing commercial property builds equity in an appreciable asset that offers both levy advantages and income-sheltering opportunities, says Chris Hurn, president of Mercantile Commercial Capital, based in Altamonte Springs, Fla. If you foresee that you’ll pass your business on to your children or eventually shut the doors grant that you can’t exchange, paying yourself "rent" now and owning rectitude in a open asset later can be a great advantage. And commercial interest rates are at historic lows, Hurn says, between 6% to 6.5% for a 20-year fixed mortgage vs. any historical average around 8.5%.

Still, taking on massive shortcoming, subleasing, and supervising disposition maintenance is not for each entrepreneur. And all substantive estate is profoundly local: While some mind of the country are vision expanded discounts from skilled in commerce developers, other choice locations will for aye have existence very costly.

Credit Crunch

Then there’s the problem of credit availability, which continues to have existence extremely not open. "The days of going to a large national bank for a loan are pretty a great deal of over for at once," Hurn said. "Smaller community banks and specialized lenders like our firm are where business is being granted."

He offers his clients some tips when they are taking into account the purchase of commercial property; you can take many of these steps now and even allowing that you be possible to’t get a loan immediately, you’ll have a jump on the process when money becomes more willingly available:

Get organized. Ask a potential lender to give you a checklist of required documents. "Full-documentation loans are worth expenditure the extra time on. The more thorough you are, the better you look to a lender," Hurn says. "You may in like manner be able to secure a bettor interest rate, saving thousands of dollars for the time of the life of the loan."

Get pre-approved. Knowing what you’ll have being able to give early on will save time later. "Lenders have become especially efficient with issuing pre-approvals for commercial loans quickly, assuming they receive the documents they need," he says.

Know your topical market. Talk to an qualified real state broker who specializes in commercial property and can movement over prices, comparable lease rates, and demographic denunciation with you, so you’ve got an idea whether buying is worth it and what the best locations in town are.

Consider financing options. Hurn is a great fan of the SBA 504 loan program. "It provides up to 90% loan-to-cost financing with longer amortizations and below-market self-interest rates, force of will preserve greater amount of of your capital for better uses, keep your cash flow high, and allow you to redeploy your capital savings into other profit-generating business activities," he says. Not every small-business owner will qualify because this program, but greatest number do, Hurn says.

Establish an ownership entity. You should own commercial property through a disconnected real estate holding company, not from one side your current calling entity. That way, "If you decide to barter your operating business later, you can maintain your real estate collection," Hurn says. The property can eventually get to be a retirement asset for you, generating regular monthly rent checks.

Another thing to think about, granting that your assets are not able to provide the downpayment on a property you’indirect way like to buy, is partnering with another fortunate business owner. Two or in addition of you could form the real estate holding firm to purchase the property together.

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