There are a number of benefits for constructing your own commercial building for your business. You might be considering such an extensive project to accommodate the additional space your business needs to expand operations. Perhaps you simply want to create an asset for your business to improve its overall value.
Alternatively, you could be thinking about building commercial premises to improve your company revenues by renting out additional space to other businesses.
Before you renew the lease on your existing office space, take some time to consider the advantages of constructing your own commercial building.
Constructing Commercial Property versus Leasing
Owning your own commercial property can have a significant impact on your business. Some of the advantages include:
Full Control: constructing a commercial property for your business gives you the freedom to design the building to suit your specific needs. By comparison, when you lease an existing property, you’re required to conform to existing floor plans and building appearances.
Building a Business Asset: constructing your own business premises gives your company a saleable asset that boosts your business’s value.
Growing Business Equity: as you pay down your commercial mortgage, the amount of equity you have increases. Likewise, your equity also increases if the value of the building appreciates over time.
Tax Advantages: ownership of a commercial building can provide significant tax advantages. The interest on the mortgage loan is tax deductible. You’re also able to use annual depreciation deductions on property taxes.
Improved Cash Flow: in many cases, the mortgage loan repayments can be cheaper than the rent amount you’d pay on comparable leased premises, which frees up your business cash flow.
Easier Cash Forecasting: choosing a long-term fixed-rate mortgage allows you to forecast your business expenditure more accurately, as you know your repayments will remain the same. By comparison, if you lease your business premises, you have the worry of annual rent increases to factor into expenses.
Improved Business Reputation: A new construction creates a sense of excitement within employees and existing customers, as it appears your business is growing and expanding. Constructing your own custom commercial building can help to improve the overall perception of your business, which boosts overall brand recognition and reputation at the same time.
Before You Commit to Constructing a Commercial Property
While there are some significant benefits to your business in constructing a commercial property, it’s important to take some things into consideration before you commit. These include:
Choosing the Correct Ownership Entity
Speak to a good accountant about the best entity in which to establish ownership of the property. Some accountants may advise that the commercial property is owned using a Limited Liability Company (LLC) formed specifically for that property.
The basis behind this line of thinking is that the business then pays rent to lease space within the building from the LLC. The business claims a tax deduction for lease payments made to the LLC. In return, the LLC declares the rent as income and claims the interest charged on the mortgage loan as a tax deduction.
You may have big plans for how you want your commercial building to look, but it’s important to consult with a specialist civil engineering and architecture firm, such as CochranEng.com to ensure your project is viable. A specialist engineering firm is able to provide a concise quote to complete the project, which allows you to work on budgeting and cash flow forecasting with more accuracy.
Securing the right financing to complete your project is crucial. Discuss your project with a bank advisor or a specialist commercial banker to determine the affordability of your project. You may need to provide a comprehensive business plan that shows realistic revenue projections and cash flow forecasts to obtain the financing you need.
While you may be keen to build your own business premises, your budget is one of the most important elements to consider. Once you’ve discussed the project with a civil engineer, a bank advisor, and an accountant, you’ll have a clearer idea on overall costs, tax benefits, mortgage loan repayments and other expenses, which can make setting your budget much easier overall.
There are plenty of things to consider when choosing the right premises for your business. Before you decide to renew your next lease, take a closer look at your options. You could find that a new commercial building could help you build your business in ways you might not have expected.
David Adams is a commercial builder and has been in the building industry since he left school. He shares his tips and knowledge online for a range of blogs, usually business focused.