Investing in real estate can look very different for business owners than for private individuals, but some of the considerations will be similar. For example, deciding whether to buy or rent a home will depend on the amount of funding you have access to and what home prices and types are available in your area, so deciding whether to buy or rent a commercial property.
Mortgage and Rent
Small businesses looking for a new location will need to decide whether to rent a property or sign up for long-term mortgage payments. As long as your company occupies fifty-one percent of a commercial property, you are eligible for loan programs such as those offered by the SBA. This option is often recommended by executives in the industry, like Stefan Soloviev, for business owners because you will be able to receive rental income for the units you do not occupy and have the option to expand into those spaces in the future.
Residential real estate tends to appreciate faster than inflation over the years, meaning it becomes worth more in the future than when you paid for it. This rise in value can allow you to charge more for renting the space. Small business landlords can use this appreciation to sell the property for a profit or refinance the mortgage for better rates or renovation money.
Maintenance and Repairs
One thing to keep in mind before you buy any real estate is that you will be responsible for the maintenance and repairs to the property in addition to the mortgage and taxes. If your small business is in a related field, like construction or landscaping, these responsibilities will not be far beyond your core competencies and easily managed. If you are averse to making repairs or too busy for routine maintenance, it is good to hire a third party for those tasks or forego investing in real estate.
While the three things leading your business to success are all location, the longevity of your stay should be a more significant factor in deciding whether to buy or rent. If your company will quickly outgrow the space and you do not want the responsibilities of a landlord, then buying the property will mean that you will have to sell it when you move locations.
Businesses can and do invest in real estate, both as a location for a brick-and-mortar store and as rental income. Before you buy, you will want to consider how long your company will fit in the space, what your maintenance and repair expenses are likely to be and whether you can use it as passive income in the future.