Many of my acquaintances pushed me to buy commercial real estate from the start. Although I know they meant well, their lack of experience as business owners and real estate investors made me skeptical of their advice. I remembered reading that commercial real estate is a different business. When you choose to buy a space rather than lease, you are essentially acquiring a second business. Not all business owners have the time, experience, and knowledge to manage this. It can be a risky move that may end up jeopardizing your original business rather than serving as a sound investment. With that in mind, I decided against buying a property while I worked on making my sewing classes more engaging and appealing. I have no desire to get rich off of what I do, but I did want to make sure that I wasn’t operating at a loss either.
Now that I’ve become more comfortable with the operation of my business, and the success of my sewing classes has increased profitability, I feel I am ready to commit to a second venture without any detriment to my original one. That is why I’ve made the decision to stop leasing and start looking into buying a commercial property. Before arriving at this decision, I sat down with a real estate expert to analyze my situation and weigh out all the pros and cons of renting versus owning.
Here are a few things I believe everyone should know before transitioning from leasing a commercial space to owning one.
- Trendy locations tend to change from year to year. What may be considered a “hot” area right now can quickly fall out of favor after the hype has died down and a new “hot” neighborhood goes under development. This means that you may not be able to make the return you were hoping for on your investment.
- Buying a property can tie up a large portion of your assets, leaving you with very liquidity. Should you business encounter any setbacks, you will be left with very little wiggle room as it takes a great deal of time to sell off a property.
- Once you own a property, you will be solely responsible for any necessary repairs. These can often come unexpectedly and take a heavy toll on your cash flow.
- If you plan to rent out the property, you need to also keep in mind that tenants may miss payments or cause trouble, resulting in loss of income as well as legal fees or other expenses.
If you choose to proceed, remember to do your due diligence before signing off on any deal. It can be more expensive to have a larger commercial property inspected or appraised, and you may also need to pay for environmental analysis and other additional evaluations of the property. Factor these things into your budget, and be prepared to walk away in the event that you discover unexpected issues and are unable to resolve the matter through negotiation. You will most likely take a financial loss but it is better than finding yourself stuck with a problematic property.