Your business is growing or at least holding its own, and every month you have to write a check to your landlord. You may already be wondering this; when is the right time to buy a building for your business?
As a CPA and Tax Strategist to small-business owners, I’m often asked when it makes sense for a business to stop renting and start buying.
As much as I am a fan of smart real estate investing, it might seem strange that I’m slow to suggest that my clients buy a building for their business. Here are 3 things to consider before you buy a building.
(1) Is your business growing? If your business is still growing, chances are good that you’ll outgrow any building you buy now. You could buy something too big, but then you are taking on extra debt, committing additional cash resources to the purchase, and/or bringing in tenants that might complicate your business model.
If your business is stable, you may consider a building purchase. Otherwise, it’s probably better to wait until you know exactly what you want.
(2) Is this the best use of your funds? If your business is new, in an area of new competition, or the economy is changing, you may want to conserve your cash for the future. Your business needs to be your primary focus. A real estate purchase is outside your core competence, most likely, and so it will dilute your time and focus away from your main company.
(3) Is it a good real estate purchase? A purchase of a real estate building is like any other investment. Is it the right time for the purchase? Are you getting a good deal? Can you afford it?
When you look at big brands, and especially franchises, you’ll find they almost always rent their business space. By avoiding real estate ownership, they can focus on what they do best, and conserve liquid assets (cash). If you have left over cash and the real estate purchase is otherwise a good idea, then buying a building for your business might be a good idea. Just don’t jump into the purchase too quickly.