The commercial property market consists of various types of properties including retail stores, restaurants, office buildings, manufacturing facilities and distribution centers. Commercial property is also known as investment or income property, and it is for financial reasons why some people are interested in purchasing a commercial condominium. Buying condo space instead of leasing an office has both its upsides and downsides, but if you are looking for commercial property offering very good value and the potential of a long-term sound investment, buying instead of leasing may be right for you.
Let’s take a look at the reasons why some people choose a commercial condo:
Investment — One of the big reasons for buying a commercial condo is to invest your hard-earned monies in property instead of giving those funds over to a landlord. You may not have any tenants, but the money that you do save each month can be invested in something tangible.
If you do have tenants you also stand to enjoy steady business income, a desirable outcome especially in a difficult economy. You’ll have to wear a landlord hat under this arrangement, not a desirable option for some. Familiarize yourself with tenant law and work with a tax accountant and real estate attorney if your property is a multi-tenant facility. Dot your i’s and cross your t’s here — you don’t want to be left holding the bag.
Location — Location is the most important feature of residential property and it also ranks up there with commercial properties. This is all the more important when you depend on foot traffic for your business. But, your physical location can be important for other reasons including your proximity to mass transit, shops and dining.
In crowded urban areas, such as Manhattan, most any property that you can buy will offer a very good location especially if you are in or around midtown. You also may find that in some areas, the only way that you can secure a place is by purchasing it. The advantage here is that you will have a ready supply of buyers to step forward should you one day choose to sell your condo. When supply is limited, demand pushes up prices too.
Stability — Commercial renters are often at the whim of their landlord. Your lease may run for a few years with an option to renew, but you just as soon may find yourself looking for a new place to set up shop every few years.
Frequent moving can be disruptive and even damaging to your business. If you buy your own condo, then your clients or customers will know where to find you 6 months or 6 years from now. This can be important for a doctor, an attorney, a real estate broker or any other professional that relies on a steady, secure client base.
Expenses — Much due diligence must be completed before purchasing any commercial property, especially a condominium. You will be responsible for association fees, property taxes, utilities and insurance. In addition, to build out the space, you will have to pay for this cost yourself — there is no landlord to shoulder some of that burden.
Your equity position can determine whether ownership is right for you. For instance, if you have limited funds, you may not be in a position to buy, at least right now. In that case, buying should not be pursued unless your upfront investment is nominal and the costs for the first few years are fairly stable.
One of the most significant drawbacks to condominium ownership is that the footprint you buy is the footprint you will own. By footprint, that means your allotted square footage. One way to avoid such limitations, especially if you envision the possibility of someday expanding your operation, is to buy an entire building and leasing out the areas you do not need, at least for the short-term. This option may be too expensive if you are a very small business, one that is not rich in equity. However, you may be able to form a partnership to buy the building and lease back your portion, sharing the rent income each month. Then, when your business expands, you can take over larger shares of the building or sell your share in the partnership, end your lease and move on. Just like in renting.
Phoenix Business Journal: Office Condo Owners Share the Pros and Cons of Deciding to Buy — http://www.bizjournals.com/phoenix/stories/2006/05/01/focus5.html