At some point in time, the business is going to have to move out of your basement. Don’t get it twisted; the basement has done the company proud for a couple of years. Without its hospitality, the firm wouldn’t be at the stage of its life that it currently finds itself. There was a need to save money and limit expenses and the home offered you the chance to do just that.
The business is expanding, though, and that brings with it new challenges. The company has to be able to sound and appear professional. Otherwise, consumers and clients will avoid it and opt for a competitor. There’s also the fact that as the business grows, there is a need to hire and house employees. Unless you own a mansion, the basement won’t have enough space.
Commercial property is the next step, but it isn’t as straightforward as signing a tenancy agreement. Some entrepreneurs prefer buying rather than leasing, for example. Whether you’re looking to rent or buy, it’s essential to make sure that the investment is sound. Here are tricks of the trade that will guide you through the process.
Length Of Contract
Business owners often make the mistake of thinking about the long-term and forgetting the short-term. Yes, a ten-year lease is cheap and provides structure. For those 3,650 days, the company has a place that it can call home and it doesn’t have to pay through the nose. But, rigidity is inflexible that is essential to factor into negotiations. What happens if a cheaper option pops up on the market in two year’s time? Even better, what if it’s less expensive and is in a fantastic part of town, an area that is bound to raise awareness of the brand? In this scenario, you have to quickly thrash out negotiations and move into the new offices as soon as possible. There’s one hitch, though – a binding contract. Unless the landlord is a saint or you pay off the rest of the deal, the company will have to stay put for the foreseeable future. On the whole, a short-term rent agreement is a wise move because it provides you with options. One of the major advantages of leasing is flexibility so you shouldn’t sign an unyielding deal.
Short-Term Over Long-Term
Buying a commercial property is the flip side of renting. In this regard, investors tend to focus on the here and now rather than the future. It’s easy to see why when all a boss wants to do is set up operations and go live as quickly as possible. Moving premises is a long process so banging out a short-term lease is a fast solution. However, be wary of cutting off your nose to spite your face. For instance, the plan may be to buy it cheaply, flip it, and sell it for a profit. Great, plenty of businesses do this to really good effect and make a killing. The problem is that the present factors may not exist in three year’s time. The location could be the biggest selling point, but what if there is a drive to build more houses in the area? Having to deal with disgruntled residents isn’t something CEOs enjoy doing, historically. Even the benefits for the company can change in the blink of an eye. Summer is almost here and shoppers love the sun and warm weather. However, this can change when autumn and winter return.
Capital Versus ROI
Pretty much everything you buy with company money is an investment that is made to increase profits. Otherwise, you wouldn’t purchase it in the first place. A commercial property – buying or renting – is no different and should follow the same rules. No responsible boss in their right mind would buy a piece of machinery or a piece of software that could bankrupt the company. So, the first thing to consider is whether the real estate is financially viable. Do you have the cash to pay the rent or the rates even if the business takes a nosedive? If the answer is no, then a cheaper option should be something you consider before signing on the dotted line. But, don’t only take the money the firm has now into account. Will this lease/purchase lead to an increase in sales? Is the return on the investment very high? If the answers are yes and the stats prove it, then it isn’t a bad move. In fact, it may be the difference between expansion success and failure. 247 Broadsheet says that things such as location, infrastructure, and the local economy are vital factors to consider.
Major Flaws
In the same way that you wouldn’t buy a house that was subsiding, you don’t want to invest in wonky office space. In general, this is an issue that is almost impossible to repair. And, if you can, it will set the firm back thousands of dollars. Plus, there is the hassle and the stress to consider also. There is no point buying a property only to spend your time worrying, bitching and moaning about all of the hard work. A piece of commercial real estate is by no means a straightforward task, but digging up the foundations is something you want to avoid like the plague. Remember that as a buyer or a renter that the ball is in your court. It’s your money and no one can make you sign a contract that isn’t in your best interests. Of course, no one is going to put all of the information on a plate for you, so research is vital. Digging down into the nitty-gritty is a process that you shouldn’t shirk. If anything, it’s something to take step by step to ensure that the deal is a favorable one. Don’t confuse major flaws with small things that are easily fixable.
Cost/Repair Ratio
Okay, this is going to sound like a huge contradiction, but stay with us here. Yes, subsidence is often something that is a deal breaker because of the money and time costs. However, don’t dismiss a property out of hand until you have looked into the fine print. Consider this scenario. You’re in the market for a piece of commercial real estate and find one that has the perfect location. Better yet, it’s half the price of everything else on the market. There is a catch, though – it’s falling down. Do you wash your hands of the responsibility, or do you see the silver lining on the horizon? Well, the answer depends on a range of factors. If it’s cheaper to hire Helitech to repair the foundations, then you may want to consider your position. Let’s face it – opportunities such as these don’t come along very often. And, if you can keep the expenses low, then it’s somewhat a no-brainer. Only go to these extremes when the hard work is worth the effort. Anything that is in a mediocre area with a relatively high retail value isn’t a sound investment.
Payment Conundrum
How are you going to pay? Firstly, let’s take a look at leasing options. In many ways, it’s self-explanatory because you have to release the funds every month. Still, you can pick which option is the best for the business. To this day, some owners prefer to pay in cash rather than leave a paper trail. As dodgy as it sounds, it is a viable option if the company is cash-rich and doesn’t have many assets. Usually, the best way to pay is to set up a debit online and let your bank release the funds at the same time every month. Then, there is no need to worry about missing payments and incurring late fees. Buying gets difficult because the amounts are large and there’s a good chance you don’t have the money. Applying for a bank loan or a mortgage is always on the cards, but don’t assume it’s the only option. Alternatives include part-ownership. How it works is straightforward – the fund owns half and you own the rest. This is an excellent way to source the money without high-interest rates and mounting debts. However, be aware that when there is a sale that the fund will take a 50% cut. Another option is to invest in a fund that owns the property. It’s very indirect but it does have its pros.
Experience
The above takes one thing for granted – your level of expertise. It’s easy to see real estate as something which is basic and not complicated. Residential homeowners invest all of the time and seem to come away unscathed so why can’t you? The reality is that commercial real estate is a complicated and messy affair, and novices will get eaten alive. This is particularly true if you’re looking to buy a building outright. Still, it doesn’t mean you should pull out. As long as there are experts by your side who you can trust, then they can carry the slack.
Only you can answer the question – is commercial real estate a sound investment?
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