Many business owners have dreams of owning their own office space — more freedom and financial advantages topping their list of reasons.
Once your business is in a good position, it can be a good opportunity to explore dropping your lease for a mortgage. While there are numerous factors to consider, “How will financing work?” is typically the first question.
With a little guidance, those dreams are within reach. Let’s first discuss a few of the benefits to buying your next office space.
First, you will have far more freedom and control of your property. This means more options to customize your office space, which can be especially important as your business grows and evolves.
If location is key to the success of your business, you’ll never need to worry about your lease not being renewed. You can also avoid potential rent increases and have a better forecast of your monthly payments, with options to fix loan rates for extended periods.
Another consideration is the financial benefits of ownership. Being your own landlord allows you to better control building operating expenses, pick-up tax advantages including building depreciation and mortgage interest deductions along with a few other strategies, and realize the benefits of owning your building as an investment: making loan payments that go towards your equity, asset appreciation and benefits from any sale of the property.
You also have the ability to lease out a portion of your space to another tenant depending on your office space needs, allowing you to be flexible and collect additional income during any type of business contraction.
Evaluating whether your business can make the move requires an investigation into your office space financing options. In general, qualified businesses are able to purchase real estate with as little as 10% down through SBA guaranteed programs, while conventional programs can typically be obtained with a 20% downpayment.
Most commercial real estate loans require at least 25-30% downpayment. Owner-user programs available to business owners however, allow you to preserve that extra liquidity for your operations.
There are a variety of programs available depending on your long-term business plans to support you. Many owner-user loans available to business owners allow you to fix long-term rates for longer periods than are available for investment properties, and have greater flexibility on terms available.
Anticipating potential issues that would affect your qualification can save you time and money if you complete your due diligence upfront. An experienced mortgage advisor can help identify any red flags, assemble a strong loan request package and handle any hurdles during the process on your behalf.
In addition to an analysis of the business, lenders will also need to evaluate the property and any potential issues with the real estate. Having the guidance to navigate the capital markets and assess your different options can also help ensure you obtain the most competitive financing available that fits your business needs.
If arranged with the right lender, you can also finance any tenant improvements and equipment into the loan. While there are a few things to consider to make sure you are in a position to do so, the current lending market has created a good opportunity for business owners. With interest rates still historically low and an abundance of capital in the lending market, there might not be a better time to follow those dreams.
This article has been edited and condensed.
Colin Dubel is a commercial mortgage advisor and Associate Director at Charter Capital Group based in Orange County, Calif. He specializes in working with business owners to provide commercial real estate financing solutions.
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