Wednesday, November 22, 2006

Commercial Condos - Should You Buy?

Is a commercial condo the right solution for you? You own a successful business and grate every month when you write that rent check to your landlord. Wasted money is the typical thought. You own your own house, so why not own your own office or flex space? But you know this is not a very simple analysis of rent vs own. For many valley firms, change is constant, whether you are growing or you are downsizing. The static solution of buying your business space may fit your needs today, but will it in the future?
Tax benefits are interesting too. Most people would image owning your own space would benefit you the most, as does owning your own home. But for a business, you can deduct all your space costs (rent and otherwise) if you lease, but are limited in what you can write off if you buy. Yes, there is depreciation (over 39 years for the building) when you buy, but that tends to have limited impact on the analysis.
The purchase of a commercial building to occupy tends to work best for a company with a relatively flat space needs requirement. Or, if you have deep reserves, a larger building would work where you can grow within it over time. Drawbacks of course are the need to manage the space you currently do not occupy. Read: you now have a new job of being a landlord as well as CEO of your company.
Difficulties to overcome are on either side of the fence. A business owner at the end of his lease if faced with quite a lot of stress. Do not expect that the landlord will always renew a lease, no matter at what rate. And if the landlord doesn't, then where shall you move to? If you have a business that is not readily accepted in most zoning areas, this may be a long and hard search for the right space. Automotive, liquor stores, restaurants, medical to name a few all have their suitability issues in regards to zoning, parking, nimby's, etc.
Limitations aside, this is a big plus for owning your own space. Just make the right decision for your company long term. And one final thought, try not to mix your need to invest with your need to guide your business. There are many ways to invest, they do not necessarily have to be paired with your business needs.

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