The Case for Buying a Building

At some point in a business’s life, the owner will think, “I’m tired of paying rent. Maybe I should buy a building.” But when is that a good idea?

If it’s a new business, it’s never a good idea to buy. A new business needs capital to build its products, purchase inventory for its new store or buy desks for its office. There is always a ramp-up period for any new business owner, and very few come out of the box making money. In the beginning, keep your capital and make sure you can get your business up and running.

As a business gains maturity, though, the thought of buying starts to make more sense. The first step would be having a lease-versus-purchase analysis done. If you are a looking at a property that is similar in size to what you are currently leasing, your occupancy costs can be surprisingly close to what you are paying already.

Let’s say that your lease costs are similar to what it would cost you to purchase. Make sure that you consider all costs when doing your comparison. Don’t forget insurance, property taxes, repairs and maintenance.

How You Could Benefit

Even if the cost is more with the expenses factored in, and it will be, why should you consider a purchase?

  1. As you pay off the loan, you will be building equity.
  2. You can design and make the space   totally custom for you, without having to get your landlord’s consent.
  3. If and when you sell your business, you can then lease the new business owner your building. You can make your money on the sale, and then you continue to get cash flow from the rental payments.
  4. It can give your company a brand identity, something you can’t get if you are in someone else’s building.

A Question of Financing

Then the question becomes “Is financing available and can I get it?” Yes, there are plenty of financing sources available. Every bank loves owner-occupant buildings. These are their No. 1 favorite loan.

There also is financing available through the Small Business Administration. You can also finance equipment in the loan via a 504 loan. It is a great time to buy if you are an owner-user. Interest rates are at historic lows, and bankers are hungry.