To own or to rent is a big consideration for commercial properties as well as residential ones. Here, some talking points brokers can use to help clients
To own or not to own? That is the question your client will undoubtedly ask themselves after a few years of leasing their commercial space. Small business owners tend to be intrigued by the idea of purchasing property, but each case is different. For some, it might be the perfect moment to transition from leasing to owning. However, in other instances, a business needs to mature before a borrower commits to purchasing a commercial space.
If you’re looking to expand into the commercial real estate market and want more insight into the pros and cons of purchasing commercial properties, these are a few important factors to keep in mind when speaking to potential investors.
More paper, please!
First things first: let your client know they have the opportunity to create additional revenue when owning a commercial property. Take for example, a small business owner that purchases a strip mall featuring multiple units. If rented out, the borrower can tap into a new source of income. This is a major benefit to promote because a) the client will have more earnings and b) as property owners, they may be able to enjoy additional tax benefits when filing at the end of the year.
Deductions include interest expenses as well as state property taxes. Owning a piece of commercial real estate also allows the owners’ beneficiaries to qualify for tax advantages. You can consult a tax professional for more information on these and other potential benefits.
Basically, your client will have the opportunity to increase their cash-flow and, equally as important, build their assets. This leads us to the next major benefit of purchasing a commercial property: Equity.
Equity, equity, equity
Sure, leasing a space to multiple tenants may be tricky, but in the long run, it can be incredibly lucrative for your client. Think about it: owning a standard 3-bedroom, 2-bathroom residential home in the suburbs accumulates equity over time and has the opportunity to sell for a profitable margin. Owning an office building with multiple available units gives an investor the chance to collect additional rents each month and ultimately, generate more income.
With ownership, your client will have a number of options regarding the future of both the company and property. If business is booming, the borrower can sell the property altogether—with or without the business—and use that money for a new venture. Another possibility is refinancing and using the cash-out money to revamp the existing property.
Boss borrowers
Speaking of picture-perfect places, owning a commercial property is a major benefit for those who want sole control over the building’s repairs and remodels. Renters know it’s a nuisance to rely on a landlord to make everyday fixes that can range from big issues like a broken roof due to environmental factors to smaller problems involving running toilets or a broken A/C system.
Those who own their commercial real estate don’t have to wait for someone else to make necessary improvements. They can make repairs or spruce up their property whenever it suits the needs of their business.
For clients who have a growing business, this is a significant benefit to consider. Business owners who rent might be the boss when it comes to their company, but they will still have to report to the property owner. By choosing to purchase, they are now in full control on both a business and property level.
But wait…
Although there are plenty of reasons why purchasing a commercial property is the right move for a small business owner, there are also several drawbacks to think about. For one, your client will be required to put down an expensive down payment, which isn’t ideal for borrowers who have young companies.
On the other hand, business might be booming, but they might want the flexibility of moving around as their company expands. And let’s not forget that purchasing a property brings a number of responsibilities regarding tenants and their well-being.
As a broker, it’s crucial to lay out all the facts to see what would best fit your client’s needs. For many borrowers, the next natural progression is to purchase. However, for many others, it’s probably best they continue to lease for a few more years. A transparent broker will not only make clients happy, they will also gain a positive reputation in the mortgage professional industry.
