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Why Buying A Commercial Property Is Not Necessarily Your Ideal Investment

Lane Kawaoka is a Podcaster for & Real Estate Syndicator of 1B AUM (7500+ rental units)

As a business owner, investing in real estate might seem like it brings you closer to your goals; you probably see owning commercial property as a source of financial benefits for both you and your business. But in this age of digitization, remote workforce, online shopping and the reality of the pandemic, is it always sensible for business owners to buy a commercial property?

Let’s face it, becoming a commercial property owner has both advantages and drawbacks. Property is often a good investment but certain conditions change that assessment. In some cases, leasing may be a better option for your business. Here are some questions you need to contemplate if you’re considering buying a commercial property.

1. Is the location fit to conduct business operations?

Depending on the type of business you’re operating, you need to consider foot traffic, proximity to other business establishments and accessibility. A manufacturing/industrial building requires different location criteria compared to a medical clinic, but most properties will need to be located near clients and/or related businesses. Remember, the location may not be the only factor that will affect your business growth but it plays a huge role.

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2. Can you afford the property?

While it might be tempting to imagine that future tenants will pay for your mortgage, there’s no sense in buying a commercial property if it is clearly out of your financial reach. You can hire the best CPA but data and numbers don’t lie: Commercial properties cost a fortune to acquire and require more money to close. The risks are high and there’s a great deal at stake. As an entrepreneur, should you prioritize investing in commercial property rather than allocating capital for your business?

3. How will the property be managed?

Sometimes financials are not a problem. Then the issue becomes whether you, the owner, have the knowledge and capacity to manage the property while also operating your own business. You cannot be an on-call plumber to your tenant in the middle of the day while you are at a meeting with your business client.

Yes, you can delegate things to a property management company. However, you must be aware of what you’re getting yourself into and the team you hire must be trustworthy. If you have no expertise in this field, buying a commercial property might cost you more than it saves you. Instead of concentrating on your own business, you may find yourself spending valuable time learning about the world of property management, hiring and managing staff, dealing with tenants and amenities — and you may find you have less time to manage your business.

4. How difficult will it be to relocate?

As a business owner, even if you think the location you’ve chosen is the best in the area, it’s still possible that things won’t work out. If a competitor suddenly barges in and you lose some of your clients, or if the property decreases in value, then moving your business away from the commercial property you’ve purchased will be tedious and expensive.

Final Thoughts

Before considering buying a commercial property you need to do your homework. Research well, consult property experts and weigh your options. Buying a commercial property just for the sake of owning it cannot be called a good investment. Understanding what you’re getting yourself into and optimizing your budget is the ultimate answer.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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