“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.” As an entrepreneur, this is one of my favorite quotes by the late American businessman and onetime owner of the New England Patriots, Victor Kiam.
For over 10 years I have been involved with the purchase and sale of multiple office buildings to local business owners throughout the Treasure Valley. There has never been a better time to purchase your own building.
Interest rates are plummeting and can be fixed for 20 years. Prices of buildings are at a fire-sale. SBA recently increased their loan limits to $5,000,000. This allows purchases up to $10,000,000 dollars including manufacturing and many self-storage facilities.
Costs that can be financed include purchasing land and constructing a building, purchasing and installing machinery and equipment, as well as professional fees and soft costs. Of course with today’s great buys it is best to purchase existing buildings that can include renovation costs.
Buying a building as a business owner is a two-part decision. While the financial consideration plays a large role, it is important to create a business strategy for the future and present business requirements.
Can the building you are considering, accommodate your near- and long-term needs? Do you plan to stay long-term? Have you created an exit strategy? Will you sell or lease the building when you move out? In today’s market what are the true advantages of owning your own building?
The Small Business Administration’s 504 loan program benefits business with low down payment, below market rates and long-term fixed interest rates. It allows the borrower to put as little as 10 percent down. The interest rates currently are 5.1 percent fixed for 20 years and 10-year fixed rate is as low as 3.5 percent.
Financing a building through this program can cut a company’s effective occupancy costs by 50 to 60 percent. This allows the business owner to control operating costs, no longer dealing with landlords’ annual rent increases.
There are numerous write-off opportunities, including the deduction of interest and depreciation, as well as the principal pay-down each month.
In most cases the building is owned by the business owner who then leases the building back to the business, thus creating an asset on the owner’s personal balance sheet. This also is a great way to expand the business owner’s retirement strategy. In addition to selling the business at retirement, the newly sold business can lease back the building, providing two streams of income to the new retiree.
There are currently 110 “qualifying” office buildings listed for sale in the valley which range in size from 825 square feet to over 115,000 square feet. By “qualifying,” these buildings are empty or near empty. Prices start under $90,000, making it possible for many businesses to afford their own building and take advantage of leasing portions of their building to offset operating costs.
In many instances the SBA 504 program allows the business to lease out up to 49 percent of its building to other tenants. This additional rental income will offset the majority of the operating costs, allowing the business to have expansion opportunities at a later date if needed.
With the perfect storm on the horizon, falling prices, plummeting interest rates, and expanding inventory, today’s commercial real estate market provides an ideal time for business owners to capitalize on these incredible conditions.
Now is the time to contact your local commercial real estate professional.
This column was written by Nancy Lemas, director and associate broker at KW Commercial-Commercial Northwest in Boise. She was honored as the 2009 KW Commercial Northwest Agent of the Year. She can be reached at (208) 344-0288 or firstname.lastname@example.org.