How to buy the ideal property for your business
Eventually, your business is going to need a physical establishment to organise its workers and potentially attract clients. When you do, you'll need to decide whether to lease or buy the property. Though leasing is attractive to business with limited capital or those uncertain of the future, buying offers a lot of advantages, such as earning you equity over time and allowing you to sublet to other tenants in your building
10 Apr 2017 15:51
However, you’ll need to buy the right property if you want to be successful.Buying the right property
These are the factors you should consider before buying a business property:
Maintaining your investment
- Understand how property prices fluctuate. A lot of research is required to calculate the price of a building. Its age, its composition, its condition, and its location are some of the biggest factors, but one of the most important and most overlooked, according to real estate professional Roxanne DeBerry, is the price that people are willing to pay. If there’s high demand for a given area, prices may rise above the “real” value of the properties, but if demand is low, you may be able to get a good deal. Learn what makes a property valuable, and keep an eye out for prices that seem lower than what the property is actually worth. It’s an easy way to make more from your investment when it comes time to sell.
- Choose the right location. Of course, the location may matter more to you than the value of the deal you’re getting. According to Edward Lowe, your location should depend on what type of business you’re running. If you’re selling or working with a specific type of product, you’ll need to plant yourself in a location where that product is available. If you’re planning to partner with other businesses, you’ll need to be reasonably close to them. Otherwise, you’ll need to consider the accessibility of your location - both to employees and clients.
- Choose the right size. It may be tempting to get the biggest building you can afford, and there is some prestige that comes with that, but overbuying can be dangerous. If you don’t fill the space efficiently or sublet to enough tenants, you could easily lose money. On the other hand, buying a property that’s too small could cause growth issues, and force you to move within a year or two—which is equally demanding of your time and money.
- Know the best way to finance. You’ll have a few options for financing you purchase. You might have enough revenue to sustain a full purchase, or secure a loan from a financial institution with some line of collateral. You may even seek a new round of funding exclusively to cover the costs of the new property. There are advantages and disadvantages to each method, so do your research and find the method that suits your company (and its position) best.
- Line up tenants (if you’re subletting). As this story from Matt Faircloth illustrates, finding tenants for your commercial building can be a major challenge. You’ll need to advertise, prepare the property, and make adjustments and improvements over time to attract and retain the best people. Knowing ahead of time that you have tenants in the wings—or at least semi-interested parties—can be a major relief.
- Consider future developments. Think about how you can boost your property’s value or make it work better for your business in the future. Could you buy multiple properties in the area to expand your reach? Could you renovate, or build a parking lot next door? Or can you use your influence to prevent unwanted developments in your region, such as new laws and regulations? How do you see this area growing over the next several years?
- Understand the tax implications. Depending on the type of property you choose and how you plan to use it, you’ll likely face some tax implications—or even some benefits—that you’ll need to consider in advance. For example, if you collect revenue from tenants, that could qualify as taxable income, but you may receive a tax break if you’re developing a local economy. Consult the South African Revenue Service (SARS) and your local government for more information.
Remember that your building is an investment, and you’ll need to maintain it if you want to see a return on that investment. Pay close attention to how the prices in your area fluctuate over the next several years, and do your part to help the community thrive. Beyond that, keep the building in good condition with regular inspections, and when it comes time to sell, strategic renovations and superficial improvements can boost your selling price.