The pros and cons of buying a commercial condos
A business entrepreneur’s ownership of his own office, retail or industrial condominium has up sides and down sides. I’ll share both views, plus my own recommendation as a commercial real estate broker.
The down side
An expanding or downsizing business demands flexibility in the size of its home. Leasing a property fits this scenario more than owning a commercial condo, where walls are fixed or bounded by other owners.
A building’s operating system can affect a condo owner’s day-to-day business. Mechanical, electrical or plumbing systems may be inefficient or unsuitable for a modern tenant, especially when a buyer relocates from a modern building to an older one.
Improvements to a condo unit are on the owner’s “nickel.” She doesn’t have the luxury of negotiating with a landlord to make changes to an interior or relocate to a more suitable suite in the building. The condo owner must pay for the improvements herself as well as suffer through the
disruption of either working in an office that’s being refurbished or finding a temporary location. Lastly, selling a business condominium can be difficult. This difficulty may be due to a worsening economy, a declining neighborhood or a very shallow buyer pool because of the size of the unit. Furthermore, a new owner may be challenged in obtaining financing.
The up side
Most business owners purchase condos in their own name to have predictable occupancy costs and
reap tax advantages. With a fixed or formula mortgage a business owner is able to forecast a stable
“base rent” over a long period and thereafter deal with ever-rising costs of property taxes and
utilities. No longer must his business be interrupted with the renegotiation of a lease every three to
five years, or must he endure potential capriciousness of a landlord. He is his own landlord.
Beyond predictability, most entrepreneurs find it cheaper to own than to lease. The cost of his
interest expense, utilities, interior improvements and property taxes are his deductions to keep – not
his landlord’s. Moreover, he can take advantage of depreciating the commercial condo over more years
for tax purposes. There is, however, the added expense of ownership-association dues to help
maintain the larger property.
The pros and cons of buying a commercial condo –
As with most business properties in the Toronto & GTA Area, business condos can be expected to appreciate in value over time. When selling, an entrepreneur should therefore be able to realize an increase in the value of his asset instead of leaving behind a trail of rental payments.
Condo ownership has intangible benefits as well. There’s an unmistakable sense of well-being in owning a business property – something that can be recognized in interacting with colleagues, customers or hiring employees. Owning a business property is unique – one sign of a successful entrepreneur.
As I write this column in the midst of a national recession and the sub prime- mortgage debacle, I continue to urge entrepreneurs to consider buying an office, retail or industrial condominium as their lease-expiration date nears. Even though a typical business property loan now requires a 25 percent to 35 percent down payment, an owner-occupied facility can be purchased with only a as low as 10 percent down payments some time . Not only can qualified small-business owners borrow 90 percent of the cost of their property plus its improvements, they also can benefit from today’s long term lower loan rates. Entrepreneurs should investigate the opportunity of owning a commercial condominium by seeking the counsel of their financial advisers to determine if this is the correct business decision; otherwise,hard-earned monies could be left behind in the long run.
Better yet contact our team and we can help you make informed decision