By Russ Smith, Senior Associate
If you’re buying a building for your business to occupy, think about your clients/customers and your key employees. Where they are coming from and how they will get to you matters. Remember, that if you own/operate the company, you are one of those key employees.
As an investor, start with buildings in areas you know. Where you shop, eat, live, and work are great places to begin.
Office? Industrial? Retail? Flex? Multi-family? This will depend on your goals and functions as a business owner and an investor.
As a business owner, you should be looking for a building that supports and compliments your business functions. Visibility, parking, and nearby amenities are important things to consider for your employees and clients/customers.
As an investor, you should consider what type of management will be required, and ultimately look to minimize your day-to-day involvement. Understanding vacancy for a specific commercial investment is extremely important. How easy will it be to replace your tenants if they leave, and how long will that take?
Purchasing a building as owner/user is the best way to start building your commercial real estate portfolio. Since you own/operate the company that will become your tenant, you see all the cards and can make judgement calls from the inside. Most landlords/investors do not get that kind of transparency. Basically, when your business has stabilized, and has somewhat predictable growth.
As an investor, your timing can be based on many things, but should always be considered on a deal by deal basis. Your goal should be to have funds ready and available to capitalize on an opportunity at a moment’s notice, but after you have done your due diligence and analysis.
Cash or debt? For most of us, buying a commercial building all cash is unlikely, and that means some type of debt will be needed. SBA loan, hard money, line of credit, conventional, and on and on. A good real estate broker/agent should be able to at least point you in the right direction for a lender or loan broker. The debt component of your purchase can make or break you on any real estate deal.
Are you buying as an investment, for your business to occupy, or both? Defining and understanding your purpose will quickly move you towards certain types of buildings and away from others.
Partnership, LLC, company, family trust, etc. Who you purchase a building with and how that partnership is structured is very important. Generally, if you are buying as an owner/user, you purchase the building with an LLC or family trust, and your company leases the building from that entity.