Monday, August 10, 2009

Are you ready to buy a commercial property?

By purchasing commercial property, you build equity in an appreciable asset that also offers multiple tax advantages and income-sheltering opportunities not available with leasing. But is it right for everyone?

Here is a list of factors to consider when evaluating the purchase of a commercial property, particularly an office or building, vs. leasing or continuing to lease.


Location/Site Considerations
  • Is it in a thriving neighborhood?
  • Is it in a commercial district that's popular and full of tenants, or half empty?
  • Are prices trending up or down?
  • Has the building been well-maintained?
  • What business image equity does the building offer?
  • How long you plan to stay in the space; will it be long enough for the property to appreciate in value? If not, could you easily rent it out to a tenant if you move?

Property Management
  • Will you hire out property management or do it yourself?

Opportunity Cost
  • What is opportunity cost of money used as deposit to purchase a building?
  • What return would you expect to receive on that money compared to the return you would expect to receive if you invested the money back into your business or other investments?

  • Cash Outlay - Down payment of approximately 25% of the purchase price, depending on the lender and buyer’s credit, vs. lease space with good credit, typical outlay is the security deposit and first month’s rent
  • Fixed vs. Variable Cost – With purchasing, costs more stable over long run, especially with long-term, fixed-rate mortgage. With leasing, the market dictates rent costs over the long term.
  • Growth Considerations – Leasing allows more flexibility and fewer growth constraints for newer companies or those in high growth mode. If company is mature and stable, or buys bigger building and rents out additional space, buying can not only meet future space needs, but offers another source of income.
  • Appreciation – In purchase, generate long-term increase in value through market appreciation.
  • Tax Factors - Lease payments are usually fully deductible, but many expenses of owning office space must be written off over longer periods of time of up to 39 years. Depreciation on the improvement portion of the property and can usually deduct all interest payments. When considering the tax factors it is essential to consult an attorney and tax professional about the legal and financial considerations of owning office space.

Saturday, August 1, 2009

Everyone Wants a Pool Table Until They Have to Cart it Away

Around 1992, shortly after we had the basement of our home finished, my husband and I went out and bought a pool table. It was one of the reasons we'd finished the basement! With three school-age kids at the time, we thought it a great addition to family fun and a draw for our kids to invite friends over. We purchased a functional-looking but high quality slate-top table.

The pool table fulfilled our wishes. I have fond memories of my father, now 87, playing pool with the kids when he visited. Although our oldest daughter, as she entered her teens, tended to go more to her friends' homes than bring them to ours, our middle daughter spent many nights and weekends during her high school years in the basement playing pool with friends. Our son did likewise, and continued through his college years to enjoy many games of pool when he came home with groups of friends.

The kids are all in their twenties now and have moved out of the house. My husband and I have basically ignored the pool table for a few years, as well as the basement with its horribly dated and worn blue rug, and white walls in desperate need of a paint job. So we decided beginning of this year to recarpet and paint. What to do about the pool table?

The carpet guy assured me his installers could move it and put it back, despite its weight. Since we weren't using the table, my husband and I were leaning toward selling it or giving it away. Not wanting to go through the whole craigslist thing, filtering calls and emails for a serious prospect, we opted for the latter--we'd give it away.

The title of this post says all. We discovered everyone wanted a pool table until they had to cart it away (and figure out where to put it). Took a while to find someone, as we say in real estate, who was ready, willing & able, but my painter's brother-in-law finally came and got it last month (actually 5 guys came and carried it off).

Why do I tell this story in a blog devoted to real estate topics? Last week I wrote about the office market heating up, and it continues to do so. I conducted several more office tours again this past week, had one lease proposal accepted by the prospective tenants, with another one requested I will send out Monday. So that's one office space leased and potentially a second.

These two parties plus several more who toured space last week were all exploring lease vs. purchase options. I know at least two were checking with lenders. There are buyers who want to purchase commercial property until they come up against the realities of lender requirements. Money is tight right now but hopefully it loosens up soon.

There are some qualified buyers out there, however. One closed on one of our office listings in Cascades Office Park in Sterling (below) last week.

One of my clients closed on an office condo in Springfield two weeks ago and an investor closed on another of our office listings (pictured below) last month, where I still have one more office condo for sale, btw.

This post wouldn't be complete without a picture of the newly finished basement (without the pool table!), with thanks to my awesome painter, Manuel Colcas of JMC Painting , who also installed the French door, and Mike Rokni of Chase Gallery Carpet and Flooring who did the carpet and tile work.