Should you buy commercial real estate for your business?
Companies all over Utah are growing. Utah is currently the fourth fastest-growing state in the United States and you can certainly tell by the big movements happening in the business sector. As a premier business banking provider in Salt Lake County, we work hard to keep up with all the companies coming to us for business banking, savings, and loan services.
A lot of companies are moving to Utah. For those that do, however, big questions remain — one of which is whether or not they should buy or lease property for their business. Because as you grow your business you will have to assess whether it makes more sense to buy or lease the office space you need to keep your operation running smoothly.
The choice you make will largely depend on your current operational circumstances, as well as your level of financing (and whether you’ll need financing). With Salt Lake City and the surrounding areas growing so much, real estate values will also play a big factor.
How you handle the land your business needs will play a big role in your future expansion. Let’s take a look at the pros and cons of both buying and leasing, before we dig deeper into financing requirements for owner-operated commercial real estate.
The Benefits of Buying Your Office Space
Purchasing a building for your company to occupy allows you to build equity in that land. When you buy, part of each monthly payment goes toward paying down the principal. As the balance drops, your equity in the property rises. You may never sell the property, but if you do, or if you refinance, you will be able to extract the equity and use it however you like.
You are also likely to benefit from asset appreciation. Consider that the commercial real estate market rises and falls just like the broader stock market. Still, over the long term, commercial real estate is a solid bet, increasing in value by 26.9 percent over the past decade. Not only will purchasing give you a home for your company, but it’s likely to continually appreciate over the years.
Also, consider that many commercial property owners don’t occupy the entire building. Sure, you could buy a purpose-built space, but if you do buy a building and don’t occupy the entire space, you could benefit from some solid rental income. This also opens additional space for you to expand into as your company grows. One downside includes having to act as your own landlord.
The Downsides to Buying Your Office Space
Depending on your situation, buying might not be best. First, buying your own office space can tie up lots of capital. Consider that your loan may require you to put up 10 to 20 percent of the overall purchase price as your down payment. You will also need to have plenty of money for other upfront costs. From furniture to network installation and more — there are a lot of ancillary costs that come with buying your own commercial property and then residing in it.
Of course, owning your own building also comes with additional liabilities. As the landlord for yourself and others, you’ll be responsible for repairs, upkeep, taxes and environmental concerns. And if you do decide to rent out any other parts of the building, you will also be responsible for additional insurance and have to meet very specific legal requirements.
Finally, buying commercial property will limit your flexibility. Consider that commercial real estate is not a liquid investment. If you want to move to a new location or expand your current space, you may need to buy a larger space or kick tenants out. Commercial real estate loans also come with 15 to 30-year terms, which means you will have capital tied up in the payments for a long time. Are there things you may not be able to accomplish as a result of your payments and upfront costs?
How First Utah Bank Can Help
If you do decide that buying commercial real estate for your company — whether to use or lease — is the way to go, First Utah Bank can help. We specialize in working with businesses on commercial property purchase loans every day. We know the complexities businesses deal with when it comes to commercial loans.
Our commercial lending officers are experienced, capable and professional. They will sit down with you and carefully analyze your finances, needs and desires for a commercial property. We’ll take you through all the paperwork and ensure you understand exactly what it is you are getting into. After all, the last thing we want is for you to avoid a purchase that is good for you simply for lack of proper help.
Here at First Utah Bank, we are waiting for your call. Our brokers understand your industry and are ready to help you into the commercial building of your dreams. Click or tap here to visit our commercial lending page to learn more. We are your premier commercial lending partner in Salt Lake City and the surrounding areas.