There’s no right or wrong answer here, but it is important to have an incredibly clear reason why you think it’s wise to make such a large investment. For perspective, buying a commercial property likely will be the single largest investment that a person makes in their lifetime, exceeding the cost of any home, expensive cars, education for themselves or their children, etc.
Given the size of this (time and money) investment, having a clear why behind it is the absolute first step. Not only will it help you articulate your vision to the world, but it will guide your next steps and help you ask the right questions to the right lenders, CPAs, attorneys, and other advisors.
Some of the most common reasons why people buy commercial property are:
Each of these reasons have one thing in common: they are all driven by a clear vision, and most of them are the byproduct of executing on your business or personal wealth first, then commercial real estate second. In other words, buying or constructing a building occurs most naturally when it’s a logical next step in a person or business’ journey to enhancing their wealth by impacting their clients, customers or patients. Beyond that, this type of buyer rarely acts alone; they have long-standing relationships with CPAs, financial planners, attorneys, mentors, real estate advisors, and others.
So if you’re starting a business venture and are considering buying a property to house your new venture, you’ll need to work twice as hard to be sure that it’s a wise financial move, because buying a building and starting a business are two completely different animals.
A very common misconception that business owners have is that they think that their building and their business both act as profit centers, but this is rarely the case. While it is possible to increase your wealth and have passive income through the rent payments you receive from your business, it is also possible that you will never realize a profit from the building because of mortgage interest, taxes, insurance, general maintenance costs and costly repairs eat into any profit that would have been available but for the true (expensive) cost of ownership.
More often than not, business owners who occupy their own buildings tend to focus (and rightly so) on their business rather than the building, letting repairs and improvements add up over time to such a degree that when it’s time to sell their business and their building, the would-be buyer is not interested in acquiring an outdated building in a location that’s less than desirable; the owner is left with a building that was perfect for them, but not so perfect for the next generation.
And just like that, the passive income and profit center that the owner had in mind when he or she purchased or built the building slowly has changed course and quickly is becoming a vacant building that they can’t seem to give away.
So be very honest with yourself when answering the question of “why do I feel the need to own a building,” because it’s simply too large and risky of an investment to take on without absolute clarity.