The dream of many small business owners is to one day own the building where they do business. Whether a stand-alone building or large office building, the idea of building equity into a piece of property, and possibly allowing others to pay your mortgage through leases, is appealing. But before you run headfirst into a commercial property deal, should one come available, here are some costs to consider.
Insurance – Insuring a commercial building properly can be expensive. Be sure you factor this in when determining your costs.
Debt – Probably your largest expense, your monthly obligation will be many multiples of what you pay for your lease. Be sure you can cover it if your tenants all leave.
Utilities – Usually, water and sewage are picked up by the owner of the property, and electricity is covered by the tenant. You will also be responsible for the utility costs for any shared spaces.
Maintenance – If the roof needs to be repaired, a tree falls down, or there is grass to be mowed, those costs are yours. Mulch doesn’t get there on its own, either, and bushes don’t prune themselves. Keeping the property looking good is part of that maintenance cost.
Real Estate Agent Fees – If you employ a real estate agent to help fill your vacancies, all of that agent’s costs are your responsibility.
Down Payment – Generally, lenders will look for a 30% down payment on a piece of commercial property. In the right situation, that may go down to 20% (SBA can often do this), however, that is an exception rather than a rule. You need the cash upfront to purchase the property.
These are just a few of the many costs which are associated with owning commercial property. Purchasing commercial property can be a great way to build long-term wealth and increase revenue for your business But it comes at a cost, and you need to be sure you have the capital reserves available in case something comes up.
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