IS NOW THE TIME TO BUY A COMMERCIAL PROPERTY FOR YOUR BUSINESS?
Many Windsor - Essex County region business owner/operators which are currently leasing their commercial property, have begun to wonder if now is the time to take advantage of opportunities to buy an office or industrial/warehouse property for their business to occupy. With interest rates at near historic lows and the stock market continuing to appear uncertain, buying commercial or investment property real estate is of interest to many organizations.
Ownership may offer many benefits over leasing. With every mortgage payment you make, you‘ll build equity in the property. That equity may be increased if the property value appreciates. And as owner you control your building, deciding such issues from corporate building signage on the property, to what capital improvements to undertake.
Operating costs are often also reduced as an owner/occupier since there are typically reduced external management fees and you decide on maintenance and upgrade schedules. You also won’t be subject to rent hikes on lease renewals!
There are of course also disadvantages to ownership. Purchasing your office or industrial property may reduce working capital which might be otherwise used to expand your business. Flexibility for expansion and contraction is another item for consideration. To obtain flexibility for growth it might be necessary to purchase a commercial building which is larger than initially required or one with tenants as you may be able to take over the space they lease over time.
Buying a commercial property in the Windsor - Essex County area generally requires a cash down payment of 20 to 30 % of the property to obtain financing. Also consider that there may be significant renovations costs required in order to customize the building for your business’s unique operating requirements and financing maybe more difficult to achieve on these items.
Perhaps the biggest surprise for first time buyers and seasoned commercial property holders is the limited availability of commercial, office, industrial and warehouse properties for sale which are both well priced, and suitable for their business to occupy. This is true for all areas in the Windsor and Essex County Ontario region including Windsor, LaSalle, Amherstburg, Tecumseh, Lakeshore, Belle River, Essex, Harrow, Colchester, Kingsville or Leamington Ontario areas. This is why you need a professional realtor on your side to do your homework upfront to help you become “Real Estate Ready”. This means help you establishing your criteria for purchasing and becoming educated on market pricing on past comparable sales and properties which are currently available for sale. You are also well advised to consult your lawyer and accountant to make sure you structure your investment to meet your tax and investment goals.
The tax consequences of becoming an owner are mostly positive. Owners are typically able to deduct a portion of the value of the building and improvements each year as depreciation, a non-cash expense that can reduce taxes on business profits, and mortgage interest. If the buyer purchases the property in his or her own name, the business can pay rent to the owner and the rental payments reduce the business taxable income.
Before you purchase it is important to know the commercial zoning by-laws(list of permitted uses by commercial property types) for the property and how much you will pay on a mortgage vs. how much you will pay in rent. Ideally you should become pre-qualified with lending sources for financing in advance. Once these things are done you will be in a position to act quickly, confidently and with minimal conditions if the property you are looking for suddenly becomes available for sale.
Finally consider your exit strategy. Try to make sure that your use for the commercial building fits with the rest of the properties in the area so that when the time comes to sell, it will sell easily and hopefully appreciated in value.
With every commercial venture being different, incorporating these FIVE STEPS into your purchase strategy before you purchase, will help you avoid costly mistakes.
Move In & Construction
Assemble Professional Team
Define Purchase Objectives
Real Estate Strategic Plan
Define Selection Criteria
Preliminary Project Budgeting
Property Survey Book
Identify Market Trends
Inspect Property Options
Building Technical Review
Preliminary Construction Budget
Project Schedule Refinement
Cash Flow Analysis
Project Budget Refinement
Submit Letters of Intent
Establish Negotiating Strategy
Obtain Approvals To Make Offers
Negotiate Purchase Offers
Complete Conditional Agreement
Undertake Due Diligence
Phase 1-2 Environmental Report
Finalize Planning & Procurement
Complete Working Drawings
Communication Voice and/Data
Install Furniture Equipment, Racking etc.
Compliments of Ron Klingbylea full time top producer real estate professional serving Windsor and the surrounding Essex County Community Areas. If you're thinking of Buying or Selling a commercial property, investment or relocating to the Windsor / Essex County Area? Contact me I can help, let my consistent, proven accomplishments and lifetime experience in real estate go to work for you.