Although purchasing commercial real estate has its risks, entrepreneurs and business owners in various industries in Illinois can benefit from buying commercial space. However, buying commercial property is not the right fit for every situation and is a decision that should be approached carefully by business owners.

Buying versus leasing

In many cases, business owners are forced to pay higher rental costs when the real estate market slows down. Purchasing commercial property eliminates this problem and provides businesses with greater control over their overhead costs. Additionally, purchasing commercial space provides business owners with the benefits associated with investing, including long-term asset appreciation and property depreciation for tax purposes.

 However, before investing, business owners should also be aware of the risks of owning commercial property. For instance, if a business chooses to purchase space in an area that is highly desirable, this desirability may not last for the long-term. Over the course of a few years, business owners may find that their business’ location is no longer in an advantageous area. Additionally, after purchasing real estate, businesses may find that they lose some of their liquidity because a large piece of property can be difficult to sell, especially in a tough market. However, if a business goes through a difficult time, selling property can be a viable way to improve an operation’s profitability quickly.

Questions to ask 

In addition to figuring out the costs of buying versus renting and taking into account the tax benefits of making a real estate investment, business owners should ask themselves the following questions before making a final decision:

• How fast is the business expected to grow? —Although anticipating the growth of a business over the next five to 10 years can be difficult, business owners, like an independent optometrist or dentist, whose space needs will stay fairly constant may be in an ideal situation to make an investment in commercial property.
• Can money be spared for a down payment?—A commercial mortgage requires a large sum of money upfront. Business owners should be aware of this cost in addition to their responsibility to cover expenses related to appraisals, inspections and closing costs.
• Is becoming a landlord desirable?—Oftentimes, commercial properties are designed to house multiple businesses in one space. Business owners should weigh the pros and cons of renting out a portion of their property to another business.

Although both buying and leasing both have their merits, the specific needs of the business should shape the decision to invest in commercial property. Business owners who desire to purchase real estate for their business may benefit from consulting with an attorney who can provide insight into the commercial real estate market.