Leasing has benefits, but your business may want a home. If you’re a business owner thinking about purchasing property, or an investor who wants to break into commercial real estate, start by building a team who can help you. Get approved for a commercial real estate loan by working with consultants who can help you answer these three questions:
- Does your business want a home?
- Is it time to move?
- What’s different about commercial real estate?
Does your business want a home?
At first, buying a home for yourself sounds straightforward: not only do you get a long-term dwelling, but you also build equity with your monthly payments. But as you look at the realities of homeownership costs, housing market fluctuations, and other factors, you realize that the cost/benefit analysis of owning a home is more complex. For many people, of course, buying a home is still a great choice. It’s just not as clear-cut a decision as we might like.
In this sense, buying a home for your business is similar. These are just some of the major benefits that buying a building can offer:
- More space for your growing business’ operations
- A more settled identity in the community
- No need to worry about significant lease increases that could cause major problems for your cash flow
- Less concern about the possibility of moving and all the expenses and customer disorientation that can come with that
- The potential for adding to your income stream by renting out parts of the building to tenants
- The potential for appreciation in the property’s value
For a lot of reasons, buying a building can be an excellent choice for your business.
Like buying a home for yourself, though, it’s not straightforward. You take on new costs and some new risks when you purchase a building.
Commercial real estate investors face somewhat different questions. If you’ve invested in residential properties and now want to get into the commercial market, you’re moving into a large-scale investment. This brings new complexities to financing and overseeing a property.
Determine the best move for you through clear and detailed thinking about the current state of your business or investment strategy and your future goals.
If you’re a business owner, you might want to consider outside sources of strategic advice, in addition to internal consultation with your management team. Business advisors or coaches can be helpful. Talking to your accountant will help you think through the financial viability of a building purchase. In addition, be sure to take the time to find an experienced commercial real estate broker you trust.
The right lender can also be a key strategic partner.
Consider working with a bank that knows the local real estate market and focuses on building relationships with business owners and real estate investors. At Flagship Bank, our goal is to get to know your business or investment goals well, so we can create the solutions that fit your unique situation.
A solid understanding of your business’ needs and strategy for the future provides a foundation for an efficient and successful loan approval process.
Is it time to move?
You may think through all the benefits of purchasing a building and decide it’s the right choice for your business. But not yet.
Whether you’re a business owner or a commercial real estate investor, use your team of experts and your own research to think through the following issues related to timing:
- Current cash flow: Is it adequate to service your debt? Is buying a building the best use of financial resources right now?
- Your business needs: For example, when do you really need the space?
- The market: Are there reasons to think waiting may allow you to buy at a better price?
What’s different about commercial real estate?
Buying commercial property has some similarities to buying a home, but it’s also different. To get approved for a loan, it’s vital to learn about the process and have appropriate expectations. The larger scale and unique nature of commercial real estate entail different financial qualifications, legal considerations, and administrative responsibilities:
- Financing: Commercial property is often put on a maximum of a 20-year amortization schedule. Your lender will closely review all aspects of the property and any leases associated with the property.
- Environmental concerns: Commercial and industrial activity brings a higher potential for environmental liabilities. Sometimes an environmental assessment of the property is required which adds additional costs and time to the transaction.
- Turnover: Tenant turnover is much more costly with commercial real estate because each tenant has unique needs for their space. The cost of modifying the building to meet those needs is often split by the landlord and tenant.
- Lease complexity: Commercial leases are much more complex, with a wide range of expenses being paid for by the tenant and landlord, respectively. It’s important to closely review all terms and conditions of any existing and new leases put in place.
- Legal Considerations: You’ll need to be aware of zoning requirements, code compliance, existing contracts with current tenants, and other legal issues. Usually, it’s wise to hire a real estate lawyer.
- Administration: All the responsibilities for the property, most of which you avoided when you leased, are yours as the owner. You need to be prepared to meet these obligations, financially and otherwise.
Preparing your investment in light of these factors positions you well, as a business owner or commercial real estate investor, for loan approval. Your financial documents need to be thorough and up-to-date, of course, but having an awareness of the other facets of commercial real estate ownership helps show your ability to manage the investment.
Start Your Journey Home
Consider a lender who’ll also be a consultant and a partner. That way, the people helping you prepare to apply for a loan are the same people who approve it.
Because Flagship is a relationship bank, we’re not just here to approve your loan. We’re here to help you understand the market and prepare a sound strategy. We know Minnesota commercial real estate, and we’re committed to getting to know small businesses and their unique goals.
We want to help your business get home. Contact us today. We’d like to hear your story.