If you’re starting a business or expanding a current venture, you have many choices ahead of you, including a lot of expenses. One of the most important, though, is location. Where will your business be located? Will you rent space or will you buy property? There’s not a right answer, but there are many factors that you’ll need to take into consideration.
Real estate can be a good investment, but as a business, it’s also a tenuous one. An economic downturn can lead to layoffs and decreased property values, leaving you with empty space you can’t afford to maintain, while a sudden market boom may cause you to outgrow your space. It’s hard to find the balance.
Not sure if you’re ready to purchase commercial real estate? Here’s how you can tell if office space is a good investment for your company.
Think Beyond Your Brand
First, if you’re thinking about purchasing commercial real estate, you need to determine whether you aim to only purchase space for your company or if you’re intending to act as a landlord as well. If you intend to rent to other businesses, you’ll need to add tenant management to your list of responsibilities, or hire a building manager to act as a liaison between you and your tenants, and to problem solve when you’re busy running your business.
If you aren’t intending to act as a landlord, but only want to purchase space for your own company, it may not be worth the investment of time and money involved. Purchasing property helps you build equity, but you can’t write off the expenses the way you can the cost of a lease.
Consider The Evolving Workforce
Another factor you should consider when looking at commercial real estate is the changing nature of today’s workforce. Even if all of your employees are currently working onsite, this situation may change in the next few years.
Cloud computing has made it much easier for people to work remotely because they can remain digitally connected to a central office – or to a network of other remote employees. With the many different programs on the market, team members can send messages, video conference, and more from anywhere in the world. That means that if you invest in office space to fit your current company size, a few years down the line, the space may feel too big (and be too expensive) as staff members move offsite.
Assess Your Resources
Obviously, you’ll need a significant amount of cash or a large loan if you want to invest in commercial real estate. There are many different types of loans available to small businesses, including those sponsored by the SBA, but generally, you’ll need to field at least a 15 percent down payment on commercial property. Additionally, companies typically can’t qualify for a commercial loan unless the business is over three years old with an excellent credit score. If you’ve entered into this process hoping that buying property can help you save money, the starting costs may be enough to push that from your mind.
Where finances are a concern, there are things you can do to reduce the financial impact of being a long-term renter, such as using energy efficient lighting and buying a smart thermostat to reduce energy waste. This will only help you if your company pays its utility bills separately from other tenants or if you’re in a single renter unit, but especially during the winter and summer months, improved energy management can save you a substantial sum.
Investing in real estate is just one way your company can build its financial reputation, and it isn’t always the best way. To make it work, most businesses also need to embrace the role of landlord, which can be a challenging transition. Before you jump to buy commercial property, then, examine your options. You need to be both financially and strategically prepared before you take this step.