Renting your place of office or industrial facility may be a good idea right now, and it may even provide some benefits.
However, any entrepreneur leading a robust and growing firm, on the other hand, would be wise to investigate the compelling financial and practical advantages of having owner occupied property on which their company is based.
If you’ve been wondering about the benefits of buying property and not renting your place it in the long run, then you’ve come to the right place. Keep on reading for our full breakdown of the main six advantages of buying commercial property.
1. Crowned Jewel of Owner Occupied Property: Building Equity
There’s no denying that buying commercial real estate is a long-term asset that retains its worth over time if properly maintained.
If you pay in cash, you immediately own 100% of the property. Your down payment and regular payments create equity in the home if you take out a loan.
Your equity is the disparity between the estate’s fair market value and the remaining loan amount if you refinance or sell the property. It contributes to the total worth of your company.
2. Use as a Baseline Investment
Capital appreciation — the rise in the value of your property over time — is a benefit of owning commercial real estate. The rate of appreciation is affected by inflation, local supply and demand, interest rates, and other factors.
When business owners purchase a facility, they often consider their ultimate departure strategy and retirement.
Many business owners like the notion of being able to sell their company while keeping their real estate. That seems to be the primary motivator for many.
This approach may not work for entrepreneurs who intend to sell their businesses in a few years.
But, those who have a longer time horizon are more likely to pay off their commercial mortgages. Also, retain the property, and receive significant income from future renters in retirement. In the meanwhile, long-term real estate trends should benefit them.
Economic cycles usually last seven to ten years. Companies that are planning to stay onto a property in a high-density region for two or three decades may expect the facility to increase in value over time.
Even if you only have 15 years before retirement, investing in business property in the desired area may pay off.
3. Generating Rental Income
Owners, who often establish LLCs to purchase their property, may not have to wait decades to start earning money from it.
Entrepreneurs may be able to rent out portions of their industrial facilities or office buildings to tenants. Thus, subsidizing their monthly mortgage costs. Or, perhaps breaking even on the property, depending on the kind of company, the facility, and their real estate loan limitations.
A company that acquires commercial property usually occupies at least 51% of it. When the ownership percentage is less than 50%, lenders categorize the home as an investment property. Making it more challenging to qualify for a loan.
If you have extra space, consider renting it out to renters as a source of additional money. If you purchase a modest building, for example, you might rent out the bottom floor to a shop, restaurant, travel agency, or other company.
4. Enjoy Smaller Mortgage Payments
You may keep expenses down by locking in your monthly mortgage payments for a decade or more. This protects your company from increasing lease rates, which a landlord may raise yearly.
While you’ll have to pay a down payment upfront, as a building owner, you’ll likely have cheaper monthly mortgage payments than you would get by renting your place.
Those who make monthly lease payments, on the other hand, are losing out on the chance to develop equity and own something, according to Cameron.
Furthermore, business owners who have invested in commercial real estate may borrow against it to generate cash flow.
5. Freedom to Customize
Business owners who lease rather than purchase may face higher environmental, zoning, or landlord-imposed restrictions on what they may do with the property. Manufacturers, in particular, need considerable flexibility in their facilities.
After all, the building is significant to the company.
It’s critical for company owners interested in purchasing a particular property to research the surrounding area and the laws and covenants that apply to the real estate. You must be sure that you are aware of the community’s limitations.
Generally speaking, buyers should go about the neighborhood, talk to neighbors, check with the local authorities, and choose a competent broker. You don’t want to become involved in a court battle. In the market, it’s a commonplace.
6. Getting Tax Advantages: Depreciation and Interest Deductions
While companies that lease their space may deduct rent payments from their income taxes, firms that own their space have several significant tax benefits. These include the possibility of depreciation on the property, which reduces taxable income, and the ability to deduct mortgage interest.
Please consult with a tax professional to assist you in analyzing the statistics to see whether they work to your advantage compared to renting.
Ready to Buy Instead of Rent?
You might be a new business owner, or you’ve been running your business for decades. Regardless of where you stand in your business timeline, it’s definitely time to consider owner occupied property and figuring out whether it’s the right business move for you or not.
We hope that our guide has shed some light on the six prominent benefits. When it comes to financing your decisions, we’re here to let you know that there is a plethora of owner occupied loan options that you can explore at your leisure.
This is why you should not be renting your place for business. If you liked our article, you can check out the remainder of our real estate tips and strategies. All of them will be available to you on our blog. And, you can always take a look at the average rates here at Hasanov Capital.
