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When is the best time to purchase commercial real estate?
Among declining property values, low interest rates, and numerous government programs that can assist borrowing efforts, today’s real estate market presents an unusual opportunity for small business owners considering acquiring real estate assets for their operations, according to Larry J. Kosmont, president and CEO of Kosmont Companies and an economic development and land use advisor.
“At the appropriate time in a company’s evolution, real estate can be a key component of a comprehensive business investment strategy,” Kosmont said.
For business owners wondering if it’s a good time to buy, Kosmont says that “many properties in cities throughout the country [have] experienced 30% to 40% drops in valuation since the valuation peaks in 2005 and 2006.”
If you’re thinking about making the jump into commercial real estate, here are tips, best practices, and advice for getting started.
Real estate is one of the largest operating cost categories for most small businesses, typically behind only salaries and benefits packages, Kosmont noted. He offered the following advice for those considering a real estate acquisition.
Here’s an overview of the steps you’ll take during the process of purchasing commercial real estate.
A commercial real estate broker facilitates the process of selecting and leasing a location for your business. Typically, a broker is paid a commission through the landlord, not by your business.
A commercial broker can also help you weigh your financial options and negotiate your new lease. To choose the right agent, consider their experience working with businesses like yours and their local market knowledge.
Although a broker can simplify the process of searching for a property, you’re not required to work with one. You could manage the process yourself to avoid broker fees. However, you’d be responsible for finding properties, scheduling tours with landlords, and negotiating contracts.
Once you’ve found some potential properties for your business, you’ll start touring sites. To determine if the location could be a good fit, imagine your business operating there. You should also compare the rent or purchase price to similar commercial sites.
Consider bringing a licensed contractor to site visits. This expert can advise you on the feasibility of your plans for the location. Once you have all the information you need, you’ll be ready to finalize your location choice.
After weighing your options and finding a property you like, you’re officially ready to negotiate your lease. Here are a few key parts of a commercial lease that you might want to negotiate.
The decision to open a second location requires ample consideration. You might have big goals, but will your commercial real estate budget permit them? After all, having a second location is like having two of everything, especially expenses. Between increased inventory, more staff, and another lease, the additional expenses can quickly become overwhelming.
Even if you have a budget for your current location, your second location will need its own small business budget. This way, you can account for potentially greater expenses than when you made some of your first business purchases. With a budget in place, you’re officially ready to contact an agent and follow the steps above.
Cynthia Bunting contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.