What to Consider Before Buying a Building for a Business

Back to blogPosted by Brett NagelPosted on Operations & Processes

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Buying commercial space for your business is a big step but it’s also a critical step for what it will need to grow and expand. Besides purchasing a building there is also the option of leasing it; there are both pros and cons for each option. However, depending on the financial state of your business and/or how well it’s established, there may only be one choice.

Things To Consider Before Buying

-Before buying, do you have enough for a down payment? If not, perhaps renting will be a better choice for you. If you have low equity then buying is definitely not an option.
-How long do you see yourself staying in the space? Is there room for expansion? It’s wiser to make an investment as something you see long term.
-Is it in a good neighborhood or area? If your business needs steady foot traffic, it wouldn’t be wise to put it in a part of town that is farther away from where everyone walks or somewhere that feels out of the way to your potential clientele.
-Are you able and/or willing to fix small issues yourself? Having the skill to do these may be very helpful in the beginning but eventually, it may become a problem of not having enough time. The responsibility of having to do this yourself may be too much and not as easy as it would be to call a landlord to take care of things.
-Do the risks outweigh the rewards? Buying is a big risk but it can be a huge contributor to the success of your business; bisk risk, big rewards. That being said, if buying you are responsible for the property tax, repairs/ maintenance, security, parking, insurance, etc. Sometimes when people want to make that big risk they put all their eggs in one basket. In the worst case scenario, doing this may cause them to lose everything. The value of the building may potentially decrease in value or the interest rates of the loan may fluctuate.

Is Leasing A Right Choice?

Leasing is a smart and safe option for those just getting established or those who want to take the next step of expansion. Since you are leasing, any problems that may arise are going to be handled by the landlord on their time and dime. It’s a great way to test the waters in the first year to see what kind of profits you will be making so you can get a better view of what expenses are monthly and what future ones will look like.

The downsides to renting: If you renew your lease, not all of them are guaranteed to be on the same terms. Rent could be raised and those leasing could very well be caught off-guard by it or may not be prepared to pay a higher payment. Or some costs may be cut which means less time spent on maintenance and repairs. In some cases, the longer you have to wait for something to be fixed, the more it impacts the profits you could be bringing in.
If the building needs extensive renovations and repairs that’s essential to the success of your establishment, sometimes leasing may not be a good thing due to stipulations the property must be left in the condition you found it in. Some landlords may not want to make the investment of renovations or may not want any large fixtures to change the look or layout of their building.

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