Factors to Consider When Purchasing a Building
November 18, 2016
For many business owners, the process of purchasing a building can feel overwhelming, confusing and complicated. In our latest blog, we highlight the most important factors to consider when searching for a commercial real estate property.
Ideally, you should begin the building acquisition process 10-12 months from when you want to occupy the building, although it can be done quicker, depending on a number of factors, including the changes needed to the building. We have seen companies purchase a building in 60 days, but starting early is always better because less mistakes are made.
Goals and Objectives
Prior to actually “looking” for a building, it is important to determine your short and long-term goals and objectives for building ownership. There are a number of good reasons to own and reasons not to own, but you need to answer “why” you want to own vs. lease prior to starting the building search process.
The old adage of location, location, location also holds true when investing in a building for your business. The area you chose can make a big difference in the building’s appreciation, the employees you hire and the customers you attract, so it is vital to understand the neighborhood and its future. It is hard to sell a building in a bad neighborhood.
Upfront Space Planning
Planning for future growth is as important as the location you chose. The last thing an owner wants is to purchase a property and three years later with the business booming, the building can no longer meet the company’s space needs. It is very helpful to hire an architect/planner early in the process to avoid future space problems.
Before you get too far down the road, determine what the organization can afford in annual rent. A good real estate broker should be able to help you calculate what you can pay for a building by using the “full-service” rent the business can afford and backing into a purchase price. The cost to move the business should also be a factor.
Building Must Have and Wish List
Our team at J.H. Berry has found that most buyers will do well to formulate a list of key items important to their organization when considering a future headquarters. This list might include price, location parameters, parking needs, image, expansion, visibility, power capacity and technology infrastructure. It is also helpful to create a wish list.
Whether most owners want to admit it or not, the commuting distance for the business owner has a big influence on the chosen location. What commuting distance is realistic for the decision maker and the employees? You will also want to think about the location of your future headquarters, in reference to your customer base and client network.
During the building acquisition process, many business owners don’t think far enough down the road about an exit strategy/future sale of a potential building. At J.H. Berry, we believe it is important to be strategic in your purchase, such that you buy in good areas and you purchase a building others will want to buy in 15-20 years.
If you are planning to obtain a loan from a bank or financial institution, you will need enough cash for a minimum of a 10 percent down payment on the total cost to occupy the building. Prior to closing, it will be important to determine the all-in cost of the property, including, moving costs and any needed renovations. A contractor can help here.
Tax consequences vary per municipality, so as a business owner, you will want to understand the tax consequences of each city/county you are considering. In addition, some municipalities have better incentives for new businesses than others. We find it important to be informed on these taxes early on in the building acquisition process.
If you have any questions about what to consider when purchasing your next building or about commercial real estate in Birmingham, Alabama, please give John a call at (205) 226-8620 or visit www.jhberry.com.