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Do You Really Want to Buy a Commercial Property?

Discussion in 'Mumbai Real Estate' started by christypereria, Jan 14, 2018.

  1. christypereria New Member

    Do You Really Want to Buy a Commercial Property?

    To many, the prospect of buying a building seems like the best way to cover the occupancy needs of their business. Most compare building ownership to home ownership where the ownership advantages are obvious. However, building ownership has some distinct differences that make ownership good for some companies and not good for others. Here are some things to think about when considering buying a commercial properties for sale in Mumbai ?
    1. How Stable is Your Business?
    Not just financially, but also from an occupancy perspective. Yes it is true that you need a good financial situation business-wise and/or personally, to qualify for a loan to buy a building. However, you’ll also need to consider how the new building will work for your business over the long run. Many businesses have bought buildings, spending a tone of money and time in outfitting the building to suit their business needs, only to find that they quickly outgrow the building and have to end up looking for an alternate solution. For most, business growth is the key to their success, and an obsolete building can be a real headache when it won’t sell quickly, the market falls or backfilling the building becomes a management nightmare. Just make sure your business can occupy the building for at least 5 years. If you expect tremendous business growth in the near future that will necessitate a larger facility, you are better off leasing until your business is more stable.

    2. Are You Ready to Put Your Personal Assets on the Line?
    Many business owners think they can just buy a building to house their company simply based on the strength of their business. While this is true for very large businesses, for most small to medium-sized businesses any bank will expect the business owner to guarantee the loan with their personal net worth. Like all real estate, commercial property goes through cycles and typically when there are a lot of new small buildings and/or office condos going up or being refurbished, the market is hot. You need to anticipate a downturn in the market. You can’t just bet on inflation forever, unless you have a tremendous amount of staying power to ride out a down market. In our modeling of buying vs leasing, don’t assume big appreciation. If it happens, that is a bonus, however run your models with minimal expectations of inflation.

    3. What is the Cost Difference Between Buying a Commercial Property & Leasing?
    You may be surprised to know that most people who buy their own building for their business never do a comprehensive cost comparison of buying vs leasing. They just decide, “I want to buy my own building” and move forward. Before too long they’re emotionally tied to the concept of buying and may even get stuck buying a building due to business and time constraints. You’ll not only need to consider the price of the building, but also the cost of any improvements, the closing costs and loan points, all ancillary and continuing costs like taxes, insurance, utilities, association dues, maintenance, janitorial, common area expenses, etc. Also, don’t forget to include the opportunity loss of your down payment if it were otherwise invested. Put it all in a model and compare it against a comparable building that is available for lease. More often than not, the all-in cost of owning is quite a bit higher on a monthly basis than leasing a comparable building. yes, you can offset the costs with tax savings, structure depreciation and possible asset appreciation, but typically unless you plan to hold for a long time (5-10 years +) or unless appreciation is rampant, the cost of ownership will likely be higher in the short run.

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