When is it the Right Time to Purchase Commercial Real Estate?
The broad answer is “whenever property values are declining.” Commercial real estate (and real estate in general, as a matter-of-fact) is historically one of the most reliable investment vehicles out there. After all, people will always need a place to live, and businesses will always continue to form and flourish. Any downturn is only temporary, in the current era, properties in the US have seen 30%-40% drops in valuation ever since the peak of 2005. In the following, we’ll see a few of the most important considerations to take into account before buying commercial real estate.
Assess Your Business Requirements
First of all, what does your business require? Understanding this is paramount to picking the best commercial real estate location and property. It should be profitably close to suppliers, employees, and customer traffic, for starters. Keep transportation access in mind, too, as well as building characteristics that are conducive to the equipment you will require.
Should You Lease or Buy the Property?
Which one you choose depends on the short or long-term viability of ownership. To make this assessment, you have to be well-versed in the risk/reward associated with real estate in the commercial space. In some cases, you can benefit more from property depreciation and income related to leasing or owning. Additionally, it matters whether or not you are an LLP (Limited Liability Partnership) or an LLC (Limited Liability Corporation) to better take advantage of the tax situations as concerns property ownership vs. leasing.
Cost/Benefit Analysis: What is Your Financial Wherewithal?
This is the most straightforward part of the process, frankly – it forces you to be as honest as the numbers you see on the paper. If you’re buying commercial real estate property, then the numbers will be starkly evident as to whether you can afford the downpayment of 5%-25%. A broker can be a huge help in searching for a property that suits your ability to buy or lease.
All-in-all, it behooves you to employ your financial toolkit to the fullest when planning to buy commercial real estate property. There’s help available for financing in many avenues; from the private sector to the federal.