New York's Premier Business Intermediary^SM

Commercial Property

Owning your own building offers numerous benefits. You'll build equity in the property, which may be enhanced if the property value appreciates. And as the landlord, you control the space, deciding everything from what color to paint the building to which tenants-if any-to lease unused space to. You also control costs, since you can decide on financing and maintenance and upgrade schedules. And you won't be subject to rent increases.

Buying a commercial property typically requires a down payment of twenty percent of the value. If your property has other tenants, you'll need signed leases to show your lender. You'll also have to arrange for the property to be insured against damage or loss. Terms of the loan will normally be fifteen years, with the interest rate tied to a benchmark, such as the U.S. Treasury securities rate. Buying commercial property is not a trivial exercise, so you'll want expert legal, financial and real estate advice at every step of the transaction.

Don't Forget to do your Due Diligence

There are several factors to consider before making your buy decision. First, what is your cash position? If making a down payment consumes essential cash required to expand your business, buying now may be unwise. Also consider that you'll need reserve funds or credit for unexpected maintenance. These expenditures can be substantial, for example air conditioning systems, roofs, and foundations repairs.

Carefully scrutinize the tax consequences of becoming a landlord. Most are positive. Typically, owners are able to deduct a portion of the value of the building and improvements each year as depreciation, an accounting mechanism that can reduce taxes on business profits. If the entrepreneur purchases the property in his or her own name, the business can pay rent to the owner, which generates income to the business owner without incurring double taxation.

Another aspect is how you view your business's future growth. As you carry out your space planning, how much space will you need 5 years or 10 years from now? If your business is growing quickly, owning your own space is probably not a good idea, if you're going to buy a building and occupy it all by yourself. On the other hand, if growth is moderate then you can always buy and rent out the spare space. Having tenants will give you more flexibility, as you may be able to take over their areas as needed in future.

If you purchase, you need to calculate how much you'll pay as a mortgage versus how much you'll pay in rent, also factoring in the effects of appreciation, amortization, taxes and repairs. You'll like being a landlord instead of a tenant when you calculate the rate of return with a postive figure, but there are no guarantees. Winning can be a good way to establish a desirable location, avoid future rent increases and get a good control of your own future, while making a potentially profitable investment.

Finally, why sell commercial property?

• Source of cash that can be used elswhere

• You foresee that your businesss may no longer need this particular location

Consider a realistic exit strategy. Always try to pick a building that fits with the rest of the properties in your area, so when the time comes to move, you'll have less trouble selling.

Call BBNY for assistance in buying or selling any commercial and industrial real estate…call at 585-624-7998 Ext 111 of email us. We will be pleased to assist you.