Are you facing the prospect of purchasing a commercial building?
Growing your business is exciting. It’s a bit scary too. We know because we’re doing the same thing. Almost daily we face decisions that could have a long-term impact on our business. It’s hard to imagine navigating the process of purchasing a commercial building without being armed with some basic knowledge and thinking through some alternatives. Here are four things to consider.
Consider Going Virtual
We love technology. The internet has changed the way we live and work. More and more companies are opting to go virtual. A prospective tenant for a building we own recently told us that she had 50 employees and had not yet leased office space. Wow. The proliferation of virtual meeting software like Skype and GoToMeeting have made video conferencing a snap. Unless it’s critical to your business, we recommend going virtual rather than paying for the bricks and sticks that ultimately drain your bottom line.
Build it Yourself
In case you haven’t noticed, the landscape of commercial buildings is changing. Dramatically. You’ve probably noticed the change in your own neighborhood. Consumers are no longer satisfied with shopping in a plain prefab metal building. Even discount retailers have taken note. Winning business from the millennial generation requires your commercial building to become an experience. Buildings with a more utilitarian use are also changing, growing higher to accommodate more stock and incorporating retail areas for product display and distribution to the end-user. When you build it yourself, you have total control over the design and features.
Renovate an Older Building
Many commercial buildings appeal to our nostalgic side, appearing aged, even when newly constructed. This ‘aged-look’ is built right into many older commercial buildings, especially those in densely developed urban areas. The nostalgic appeal may be preserved and incorporated into an extensively renovated building. Purchasing an existing building will require a bit more due diligence. You will need to develop a renovation budget, ensure the structural integrity of the building, and find creative ways to integrate the nostalgic design elements you hope to incorporate.
It’s All About the Dollars
To borrow a line from Joe Pesci in the movie “Casino” (or at least my recollection of it), sometimes “It’s all about the dollars”. When your primary motivation for purchasing a commercial building is the investment potential, it would be easy to make a misstep. Evaluating cash flows isn’t for the timid. Nor is it easy to understand the risk profile of different property types. If you’re purchasing a commercial building for the investment potential, you’re basically trading present dollars for future dollars. It’s important to show up at the table knowing as much as possible about rent levels, lease clauses, and expense levels for the specific type of property you hope to purchase.
Whatever your motivation, the purchase or construction of a commercial building is a huge decision for most small businesses. Growing your business may or may not require a purchase or construction. You might find that leasing is the preferable course of action but that’s a discussion for another day. Meanwhile, these four tips should give you some food for thought.