Purchasing Commercial Property: Is It Time to Buy?
As your business grows, a crucial question arises: Should you stop renting and invest in commercial property? Whether due to space constraints, cost savings, expansion needs, or warehouse storage, purchasing property can be a game-changer. But is it the right move for your small business?
-
Buying commercial property comes with advantages similar to homeownership:
✅ Building Equity – Part of your monthly payments contribute to ownership.
✅ More Control – Make changes without landlord restrictions.
✅ Predictable Costs – No sudden rent hikes or lease changes.However, there are unique challenges to consider:
❌ Outgrowing the Space – Rapid business growth could require a larger location sooner than expected.
❌ Financial Burden – If the business slows down, a hefty mortgage could strain cash flow.
❌ Location Issues – What if foot traffic declines or the area becomes less desirable?Carefully assess your long-term business needs before committing to a purchase.
-
Commercial loans differ significantly from residential ones, and the key distinctions could impact your decision:
📌 Fewer Protections – Residential properties have legal safeguards that commercial properties lack.
📌 Higher Down Payments – Expect a larger upfront investment.
📌 Balloon Payments – Some loans start with low payments that increase over time, which can be risky if your business growth doesn’t keep pace.Understanding these differences can prevent financial pitfalls down the road.
-
Owning commercial property can be as complex as running an additional business. To reduce liability risks, avoid purchasing the property under your business name. Instead, consider forming a separate entity (such as an LLC or Series LLC) to own the property. This strategy:
✔️ Protects your business from property-related lawsuits.
✔️ Shields the property from business-related liabilities.Since many lenders won’t finance a brand-new LLC, consult a real estate attorney. The best path may be to purchase the property personally and transfer it to the new entity.
-
To maintain your LLC’s legal standing, it must operate as a profitable business. This means:
➡️ Your business pays rent to the LLC (the property-owning entity).
➡️ The LLC then pays you, similar to a business distribution.This approach ensures compliance, minimizes liability, and provides financial flexibility.
Ready to Make a Move? Commercial property ownership is a strategic decision that requires careful planning. Are you ready for the next step? Contact us today for expert guidance!
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Level Books assumes no liability for actions taken in reliance upon the information contained herein.
