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What Things to Consider When You Look at Buying Commercial Property Real Estate Space

Updated on November 18, 2014

Buying Commercial real estate and starting your own business is always a fun and exciting time, but if you buy the wrong property, or rent from the wrong people, could end up costing you large amounts in the long run. Don't be taken to the cleaners only to loose your business from bad landlords or poor or badly placed locations. Buying or renting commercial real estate can be very rewarding, so don't cue it out, just do it wisely.

How Stable is Your Business?

Stability can be defined as monetary, or steady business. But do you really need to buy or lease a building if you can run your business with one person, or can you afford to hire more staff? Maybe you already have 2 or 3 people on staff and need to buy or lease that first business front. Choosing a business that meets all your goals and stays within your budget can be a challenge in and of itself. Being financially stable and bringing in enough profits each month to cover the monthly expenses and operating costs is crucial to making it in the commercial world.

Can You Afford the Payments?

Being able to afford the payments is also crucial. The less the monthly payment, the more your profit margin will be. Try to choose the most optimal location, that offers the best exposure, for the best price. Set a budget for your business for building expenses, and have that cover rent or payments, plus electric, water, and all other bills. Take into account new employees, raises, and where you are located with what you are selling, and with a little clever accounting, you might just find yourself in the best location for your business.

How Much Difference is There Between Leasing and Buying?

Look into both options, as buying might be better financially in the long run. If your certain that your going to buy in the future then just look at one side or the other, but in the long run, most business's will rent at least their first store. Save buying for later down the road once business has been established and is steady. Although, if you happen across a great deal with purchasing, it would be wise to just buy at that time. Renting has its drawbacks, such as having a landlord, but you have the peace of mind knowing that your building will be repaired and taken care of buy someone other than you, and with that being said, could end up hurting your business by having a landlord that wont pay to fix problems or fixes problems slowly. Owning a building means your now responsible for all repairs, and they will get fixed on your scheduler, but you are also financially responsible for fixing everything that is wrong, and upkeep end up becoming too expensive. Either way you go, there are advantages and drawbacks. The best way to choose is to make a list of pros and cons for each scenario and for each property, for both buying and leasing. Look at all aspects, good and bad. Whichever has more good things over bad should be the way to go, provided you can afford it.

Buying A Building

Buying a building is an extremely rewarding venture, as your business is doing good enough to actually have a place to call its own. With ownership, though, comes responsibility. It is the owners responsibility to do all the upkeep and keep the business looking and running its best, which can become a full time job. Do you have the skills or the budget to afford a repairman when repairs are needed? Will the space be large enough to handle what you need? Is there any existing damage? Will you need to remodel or change anything to make your business work in the space? Is there enough parking room for all employees and customers? Is there already existing signage or room to put in a sign? If there is a sign, is it easy to change to reflect your business? Does it cost to rent space on the sign? Is it easy to get in and out of your parking lot, as well as your store? And many more questions should be going through your head when looking at any property to rent or buy. When buying though, these questions are not as important as renting, because being an owner, you usually can change and modify most of these things, provided you have the cash to do so.

Financing, Improvements, Offer, Due Dillagence, and Escrow

Financing your commercial real estate purchase is one of the biggest things to consider when choosing a property. Going to a reputable commercial real estate office to find the listings for your local commercial real estate and then finding out your credit scores are the first 2 things to do when looking into commercial property. Finding out how much a bank or lending institution will lend you before you even begin looking at property will help you put forth all your effort and energy into a building you can afford and be financed for. There is nothing like the feeling of finding the perfect location, only to go to the bank and find out that its 10,000 a month out of budget. But don't toss that place in the trash. Use it as a goal. Make it your 10 year goal to move into that building in 10 years because you can afford it by then. Remember that most places wont be perfect from the get go. Plan some money to go to improvements, and to buy large equipment that is required for your business, such as cooking equipment for a restaurant. Also plan for standard look improvements, such as repainting, decorations, ect. When negotiating the contracts, make sure to read everything over and possibly even see about involving a lawyer, as most commercial contracts are unique to each place, unlike residential property's who use basically the same form for all property's.

Leasing A Building

Leasing a building can have its advantages basically from the fact that you as the business owner don't have to worry about upkeep as much. Yes you still have to do normal cleaning, but its no longer your responsibility to repair or replace faulty or broken equipment if it is already located at the property. This means if your parking lot gets a pothole, you can get the landlord to fix it. The drawback to this is the simple fact that you are not the owner, and any improvements you make are not to your own building. Also, with landlords, its up to them when they repair or replace broken things. You might be able to afford to fill in a pot hole in your parking lot, but that does not mean it is a high priority for your landlord, and might take months to be addressed.

Choosing a Real Estate Agent

If you either lease or buy, having a qualified professional commercial real estate agent on your side is always a positive. Real estate agents are trained and have the experience you need to understand all the lingo and jargon in contracts and can possibly find you your perfect property, as well as being a liaison between you and the landlord. Try to choose real estate agents who have plenty of experience in the area you are interested in, and they will be able to help you better. Also, try to choose firms that have the best reviews, as they usually have repair plans already in place for renters. If not, try to get one in your contract. Having a lawyer and real estate agent on your side makes wording and getting the contracts perfect for both party's a lot simpler, as well as helps prevent you from lawsuits in the future.

What To Look For In A Building

Try to find places that are visually appealing, in large traffic areas, with plenty of parking, and has enough room to handle your business. If your starting a restraunt, make sure it has a full commercial kitchen, or the ability to easily add one. It will need large spaces to store food, both dry and cold, as well as dining space. If your more a office person, your going to need a space that offers a receptionist area, offices, meeting rooms, ect. Department stores use large spaces to sell goods, and need large spaces to store all of the stock items to be placed on shelves. Take into account parking lot size. Check all buildings and make sure all the outlets work, all plumbing is up to code and working, check for leaks, damage, and anything out of the ordinary. Check the landscape. Is it neat and organized and appealing to the eye? Locations with the most traffic and that are appealing to the eye are going to see more traffic than dumps on the sides of alleys or back ways.

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  • krosch profile image

    krosch 5 years ago

    One big thing to consider too is that while buying something might be awesome from a personal perspective you might find a better location renting. So just because you want to own something don't let that override the location importance of placing your business.

    When I opened my store almost 4 years ago we had an option between buying some very reasonably priced building in a different part of town or rent a pretty cheap (lower than mortgage payment would have been) space in the downtown area.

    The downtown area is far better for traffic, parking, and location plus it was slightly cheaper with no worrying of needing to pay for building repairs.

    So in the end despite my love for real estate and the desire to own a building. I believe sales and service are much better at our current location for the business overall than owning a building in a different part of town would have been.

  • silvershark profile image
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    Kenneth Moody 5 years ago from Destin, Florida

    Great Rebuttal. thank you for your input and comment

  • krosch profile image

    krosch 5 years ago

    Didn't really mean it as a rebuttal. I agree with most everything you wrote and I think it was well done. But its just one big factor for a business to consider that might get missed. But I mean looking for a good place to lease a lot of your advice is true for that as well. All things being equal and if you planned to be in a location for a long time I think buying is a better investment.

    But if it would cost you services and access you need to think of cash flow for the business first and foremost I think.

    A great hub, thanks for writing it.

  • silvershark profile image
    Author

    Kenneth Moody 4 years ago from Destin, Florida

    No problem!

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