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Deciding to buy a commercial building for your business is tough. Here are a few questions to ask yourself before you decide to purchase a commercial building.
If you rent an office for your business and have issues paying rent, it's not the right time to buy. If cash is tight, you probably don't have the funds to purchase a new building without outside help from an investor.
If you're profitable every month with good margin and have no issue affording your current rent, buying could be a good choice.
Evaluate your business and its feasibility. Does it consistently make money? Will you still be in business 1 year, 5 years, 10 years from now? You don't want to buy a building for a business that is on the decline or hasn't scaled enough yet.
If your business is growing quickly, you might think buying a building is a great investment. But what other investments does your business need? Think about what large expenses or investments you will have in the coming years. Do you need to upgrade machinery, purchase large amounts of inventory, or are there other things you need to invest in besides a building? Make sure you are feeding the growth of your business with your cash flow, not starving it.
Having a good relationship with your bank is key. Ideally, inquiring about a commercial loan shouldn't be the first interaction you have. If you have history of loans with your bank and have a trusting relationship, it will help the process of buying commercial real estate for your business. In fact, our loan officer was planning for us to buy a building before we ever brought it up. We didn't have to do any convincing that we needed one or should get a loan for it because we kept up with him. He knew our company was growing quickly and would be ready to buy soon.
This is one area where buying commercial real estate vs. buying your own home can be very different. There are often flexible options for paying when buying a home. You get a mortgage ranging from 15-30 years and can choose a down payment size starting as low as 3%. With commercial real estate, there are no mortgages. The loan terms will depend on your bank, but they often require a hefty down payment of 15-20%. Does your business have enough cash in the bank to cover the cost of a down payment? Do some searching on potential buildings you are interested and calculate what the down payment would be if you were to buy it.
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