Over the years, I have met with many clients thinking that owning a commercial property is unattainable. After meeting with them and getting answers to a few questions, purchasing is very attainable. There is a saying I learned a long time ago, “you don’t know, what you just don’t know”, and unfortunately most people don’t even bother to ask because they believe you need millions of dollars to buy a commercial property. In some cases, that is very true, but not in every case. The small business owner can buy an office, retail or industrial condo for far less. Regardless, educating yourself will help you plan to achieve this goal.

I have had clients make comments to me early on that they feel like leasing is flushing money down a toilet. Fortunately, that is only a matter of perspective. Keep in mind, for some Tenants, they never achieve nor do they want to own commercial property. However, some think leasing is making the landlord wealthy instead of themselves. 

The truth of the matter is, leasing is a means to an end. Most Tenants start their business without any income. Many, start at home, or in their parent’s garage, or at an incubator somewhere in town and any of those are perfectly fine. Planning not to get into debt right from the start of a business is a smart thing to do. Or if you do have to get into debt, there is a reason and a plan for the money you borrow. With that said, the hope is that you build your business, and then one day you can own a commercial property. 

Here is some guidance as to how you should plan. Number one, as you grow your company, put money away. Create a budget that keeps you on track for paying all your bills and then if you can, put some money away in a company savings account. The goal is to save enough money that you can put 10%, 20%, or even up to 30% down payment on a building or piece of land. 

Preparing your Finances

The next important thing you need to do is prepare your finances. Most lenders are looking for a three-year tax history when they speak to someone that wants to buy a commercial property. Also, make sure you are paying taxes during those three years. I can’t tell you how many times I have had clients file their taxes in a way that limits how much taxes they pay. You say, “Really, I thought every small business owner filed their taxes that way?” Yes, most of them do. The problem with this plan is that when you go to apply for a loan, you can’t get approved. You see the lender can’t approve the company loan if the company hasn’t shown a profit. As I mentioned earlier, the lender is looking for a three-year history. Now, this isn’t always the case and I would recommend you speak with your business banker and CPA, because, sometimes they can be creative.

After you have been in business for three or more years and you have saved up some money, the next step is to budget accordingly. You see, good sound business is to make sure your company budget for rent or mortgage payments is running between five to nine percent of your gross revenue. For some, this may be higher, around thirteen to eighteen percent of your gross revenues. Regardless, you want this to be as low as possible. That way you can budget accordingly for your purchase. Regardless, remember to keep revenues high and expenses low. 

In part 2, I will discuss hiring a broker and negotiating the purchase. Click, “Read Part 2!”