Six Things to Consider Before You Buy or Lease Business Property
Each business has its own unique needs and concerns when it shops for property to serve its business needs. Each business owner is concerned with whether to lease or buy, how much space is needed, what kind of property is needed, how much to pay for the purchase or lease, how to negotiate the best price, how to negotiate the best terms, and how to find the best location. The following six points need to be considered before leasing or buying business property:
1. Lease or Buy:
It is usually better in the long-run to own your business property. However, that may not be the case if you are short on cash. It may be a better decision to lease a facility when you are just starting out. When you lease a building, your cash outlay is much less than it would be if you purchase a building. The purchase will require a substantial down payment, and you may have a more important use for you cash when you are starting your business.
2. Find the Right Location
You must consider how long you will be in the same location. If you think you will be in the same location for one or two years, the location only has to serve your purposes for that length of time. If you intend to stay longer in the same location, you must be satisfied that the location will be adequate for a longer period of time. For example, will there be sufficient parking as your business grows? Is it possible that area will become a high crime area? Could you lose your space by eminent domain for street expansion? Are there neighboring businesses that could have a negative impact on your business? Will the space continue to be convenient for your customers, employees, and vendors?
3. Have an Attorney Review Lease or Purchase Contract
Do not blindly sign a lease or purchase contract until you have an attorney review it on your behalf and try to negotiate for a better price or better terms. The property owner will probably have the lease or purchase contract drafted by their attorney, and it will be written to favor the property owner. Do not hesitate to review and negotiate the document and have your attorney do the same.
4. Negotiate the Best Deal for Your Company
The results of good negotiation may save your company enough money to hire more employees, to launch a marketing campaign, or to update your equipment. You need to negotiate the best terms such as the term of the lease, renewal options, rent increases, a lower down payment, acquiring additional space in the future, etc.
If you negotiate a lease, you need to know how the tenant’s share of expenses is calculated. Is it based on total square footage of the building or the square footage leased by the landlord? If you will pay a portion of the common area expenses or taxes, your
landlord must provide a detailed list of expenses prepared by a CPA. You should also have the right to audit the landlord’s books or records.
5. Choose the Right Amount of Space for Your Business
Whether you are just starting your business or you need more space to expand, you want to choose the optimum amount of space. If you underestimate your needs, you will have to relocate and that can be expensive. If you overestimate, you will pay for unproductive space. You need to be sure that you know the usable square footage of the premises
In deciding how much space you need, think about how many employees will be physically located in your new facility. Do you anticipate that any of them will telecommute and work from home? What are your projections for the employees you will need in the next two years?
6. Building Features and Layout
What do you really need in your facility? Consider the cost of each feature to see what is financially feasible. What office design will best accommodate your employees, customers, and vendors? What design encourages the most efficient production? You can research office layout and design on the internet and at the library, or you can hire a professional designer.
Your business premises must be able to operate during the regular business hours without interruption. Your customers, employees, and vendors must have easy access and sufficient parking. The business premises should be thoroughly inspected so that you will not incur substantial repair expenses after you take possession.
Whether you lease or buy, these issues must be considered carefully to protect the interest of your business. Before you sign any documents, research the property, the neighborhood, and the area around it. You need to know as much as possible about any property where your business will be located.
Jo Ann Joy, Esq., MBA, CEO
The future of your business starts here!
You may contact Jo Ann by phone at (602) 663-7007, by fax at (602) 324-7582, by email at joannjoy@Indigo Business Solutions.net, and by mail at 2313 East Ocotillo Rd., Phoenix, AZ 85016. Copies of any articles will be provided free of charge.
For information about other important legal, tax, and business topics, copies of articles, or EBooks, please visit our website at www.IndigoBusinessSolutions.net. Copyright 2006. All rights reserved. Indigo Business Solutions is a registered trade name.
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About the author:
Jo Ann Joy is the CEO and owner of Indigo Business Solutions, a legal and business consulting firm that is a “one stop shop” for businesses. We provide legal and business services and all professional services to businesses, and they will not be “referred out” to other professionals.
Jo Ann has a law degree, an MBA, and an Economics degree. She is a strategic business attorney who works closely with businesses to improve their performance and their chance of success. Her background includes commercial, corporate, contracts, real estate, accounting, financial planning, mortgages, marketing, product development, banking, and business planning and strategies. She ran a successful business for 10 years and writes and gives presentations on many different legal, tax, and business subjects.
Please visit our website at http://www.IndigoBusinessSolutions.net for more information on business, legal, and tax topics and for free copies of articles and EBooks.
Beat the Crowd When Investing in Real Estate
We all are thinking about it and some of us are actually taking action and getting their hands on real estate investment properties. The longer the NY Stock Exchanges doesn’t produce desirable returns the more people are starting with real estate investments.
For most of us the obvious choice of properties are single family homes. Although you can invest in real estate without owning a home, most people follow the experience they made while purchasing their own home. This is familiar ground and the learning curve for doing a real estate deal of this type is pretty slim.
Of course there’s a drawback with this approach. The competition is fierce and there are markets where investors are artificially driving up the cost of the properties while completely discouraging first time home buyers. If this is the case, the burst of the real estate bubble is just a matter of time.
How do you avoid these situations and still successfully invest in real estate? How do you get ahead of the competition and be prepared for bad times in real estate investments as well? The only answer I have is commercial real estate.
Why commercial real estate you might ask? Commercial real estate is a solid investment in good and bad times of the local real estate market. The commercial real estate I’m referring to are multi unit apartment buildings.
Yes you will become a landlord and No you don’t have to do the work by yourself. You are the owner and not the manager of the apartment building. The cost of owning and managing the building is part of your expenses and will be covered by the rent income.
Apartment buildings are considered commercial real estate if there are 5 or more units. To make the numbers work you should consider to either own multiple small apartment buildings or you should opt for bigger buildings. This will keep the expense to income ratio at a positive cash flow. Owning rental properties is all about positive cash flow.
With investing in single family homes it is easy to achieve positive cash flow. Even if your rent income doesn’t cover your expenses 100%, the appreciation of the house will contribute to the positive cash flow. With commercial real estate the rules are different.
While single family homes are appraised by the value of recent sales of similar homes in your neighborhood, commercial real estate doesn’t care about the value appreciation of other buildings. The value of the property is solely based on the rent income. To increase the value of a commercial real estate you need to find a way to increase the rent income. The formula on how this is calculated would be too much for this short article. I listed a few very helpful books where you can find all the details.
What’s another advantage to invest in commercial real estate? Commercial real estate financing is completely different than financing a single family home. While financing a single family home you are at the mercy of lenders who want to make sure that you are in the position to pay for the house with your personal income. Commercial real estate financing is based in the properties ability to produce positive cash flow and to cover the financing cost.
After reading all these information about commercial real estate you want to go out there and dive into the deals. Not so fast. First, you need to learn as much about real estate as possible. In commercial real estate you’re dealing with professionals. If you come across too much as a newbie you will waste these guys’s time and your commercial real estate career ended before it actually started. Second, no commercial real estate lender will lend you any money if you can’t show at least a little bit of real estate investment experience.
What’s the solution to this? Go out there and do one or two single family home deals yourself. It doesn’t matter if you make huge profits to start off with. Most newbie investors are loosing money on their first deal anyway. If you can manage to show positive cash flow with your single family home deals you are ahead of the pack.
My advice, buy a small single family home in a decent neighborhood and rent it immediately. This will keep your out of the pocket expenses at a minimum and you will have rent income to cover for your monthly expenses. Bonus, you gain experience as an investor and as a landlord.
Here’s another observation I made during my real estate investment career. Most people like to analyze, learn, discuss and analyze some more. They never actually got to do a real estate deal. They love to talk about real estate investments, but never did it themselves.
My approach to real estate investment was simple.
- I bought some books about real estate investment.
- I read every single one of them.
- I put together a simple plan on how I want to get started.
- I started looking for properties.
- I bought my first investment property 30 days after I started reading my first book.
- I made positive cash flow with all of my properties so far.
What is my point? You have to go out there and practice what you’ve learned. The only valid credential in the real estate business is practical experience. Having a couple of deals under your belt, you can go out there and start looking at commercial real estate and even impress seasoned investors with your knowledge. Because you made this experience by yourself and you know what you’re talking about.
Book reference for commercial real estate investments:
Gary W. Eldred, PhD: “Make Money with Small Income Properties”
Jack Cummings: “Real Estate Financing and Investment Manual”
You will find these books and many more on my real estate investment website at http://www.suncoastrenttoown.com/author_directory.htm
Sincerely,
Peter Dobler
Peter Dobler is a 20+ year veteran in the IT business. He is an active Real Estate Investor and a successful Internet business owner.
Learn more about real estate investments at http://www.doblerproperties.com or send a blank email to mailto:suncoastrenttoown@getresponse.com