I can hear the comments now? With the real estate market tanking and interest rates starting to creap up, why would you want to own your commercial real estate where your business is located? Vacancy rates are up and there are more than one experts predicting a possible bubble burst. But, have you looked at the numbers?
There are a number of reasons you should own the commercial real estate where you are located. First, you’re paying a monthly rent with an annual increase of at least 3% per year. In most cases, your monthly mortgage payment would be approximately the same as your monthly rent payment. Why not pay yourself instead of paying someone else and build an equity nest egg for retirement? Secondly, does your rent contract have an automatic renewal, or does the landlord have the right to not renew it? That leaves you in a position of having to find another commercial real estate building that is close to your current location. Depending on your line of business, studies can predict how many customers or patient you lose by moving your business. It can be from 2% to 20% depending on the distance you’ll be moving.
How about improvements to the building? Does your current landlord have pride of ownership like you would if you own the building. More than likely he doesn’t. Most landlords who are not occupants of the building are owning simply as an investment and they don’t want to have to put any money in the building. If you owned your own building, you would keep it clean and up to date. That attracts customers.
You also get good tax deductions by owning your building. You can write off closing costs, depreciate the building, write off the interest payments and also have your business pay rent to your entity that owns the building. Your tax accountant will be very happy.
Finally, there are currently excellent loans available to commercial real estate investors. With the right loan, you can have great tax deductions and pay yourself rent instead of putting money into someone else’s wallet.
