If you're getting into the world of commercial real estate investment, an appealing place to start is by purchasing an office building for your business. After all, you need the space, and paying rent can feel like throwing your money away. However, is this a wise investment? Let’s take a look.
Start by Asking Yourself These Questions
- How long can you see yourself in a given location? When purchasing a property, it needs to work for your business for a minimum of seven years for the purchase to be profitable when compared to leasing, though this may vary; for example, if the property has spaces to lease to other companies, you may turn a profit sooner.
- Is your business growing? If you forecast significant growth, it's possible that the space you purchase will no longer be suitable in just a few years. However, if you're getting into commercial real estate, this might still work, as it will become just another property in your portfolio.
- How stable is the local economy? If your ultimate goal is to establish a real estate investment portfolio, you want your purchases to be where the economy is stable. Depending on the nature of your business, it may be tied to a specific area where things are not so certain, at least from an investment standpoint.
Once you have your answers to these three questions, you will know if purchasing is still something worth considering. If it is, you need to weigh the benefits and risks of the decision.
The Benefits and Risks of Owning Your Office Building
- It is the start of a commercial property portfolio.
- Over the years, the value of the property can appreciate.
- As time goes on, ownership becomes less costly than leasing.
- Depending on the property, you can earn rental income from additional tenants.
- There are tax benefits, which vary depending on location.
- You have greater control over the property, making it easier to ensure it's up to your standards.
- If your property will have multiple tenants, your core business and your new commercial real estate business may start to bleed together.
- You have limited flexibility when it comes to changing locations due to the economy or business growth.
- Property value may depreciate over time.
- When things go wrong with the property, it's all on you to get them fixed.
Ultimately, if your goal is to both jumpstart your commercial real estate investments and get out of the rental game, purchasing your own office building is likely to be advantageous. Just be sure to approach your purchase like you would any other real estate investment—with long-term results in mind.
As always, MGR is here for you. With our nearly four decades of experience, your office building will be in the best hands, whether you own or lease.
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