Who owns their own commercial building?

[Nuagedesigns]

So long story short our landlords are just not the easiest people to rent from. We have been in our current location 6 years and our lease is soon to expire in 12 months. We built out office and dedicated print rooms and have a nice setup that works well for us. Aproximately 1800sqft of office space and clean production area, 1800 sqft of screen printing embroidery and router area, and about another 2500 sqft of install bay area. We are located off the main roads in a secluded industrial park. We like being off the main road as it eliminates the tire kickers and those wanting the Calvin peeing on chevy decals. We are throwing the idea around about finding a new home for our business. Just plain tired of throwing money away on rent.

Those in the business what are some things to look for when purchasing a commercial property? Anything that maybe people have gotten caught after the fact with or just some advice. We know the basics of what we need from the building I'm just looking for some ideas of maybe what to look for or things that others have found useful to them maybe when they purchased another type of business building that had attributes that were in their favor after moving in.

Also never looked into commercial type mortgage loans. Anything specific to look for vs a personal type home mortgage?
Anyone have experience with Lease to Own?

And any helpful tips when actually moving the contents of the business? this will be our 4th building in 15years and Im pretty sure I will rent a 53'ft trailer and not sure if it will all fit......This is going to be stress full.....

Thanks
Bruce

 

[ddarlak]

I was in the same boat as you 8 years ago, I was sick of paying rent (14.4K a year) and found a building that has 3000SqFt for me along with an attached apartment complex. I am just about paid off on the building (4K) and it has been well worth it.

The apartments have been a good income and hasn't been too bad to manage.

I used a variable home equity loan and three credit cards to purchase the building, the loan started at 7.125% and has dropped to 2.49% for the majority of the loan because of the bad interest rates.

The credit cards at the time had 0% cash advance with little or no transfer fee, I concentrated on the worst of the cards first, one by one they fell and then it has just been the equity loan.

Best decision I ever made, if you can find a building with rental capabilities, I'd say go for it.

As far as a business loan, forget about it, too many hoops to jump through and they want way to high interest.

 

[reQ]

Paying $40320 per year fr building i am in. Got 2 bay with overhead door + car wash equipment in them (which is handy) overall building is over 4000 sq/ft. I know my landlord good and we have documents in place that in 3 years i will buy off him (banks don't like me right now, under 6 years in business & they don't want to mortgage it for me yet)

Hate wasting money like that but i don't have much choice at the moment. Positive thins is that i can write off 100% of my lease payments at least.

 

[OldPaint]

dont know your status on your home property, but if you got acreage to build your own building, thats what i did. i dont have near the sq ft you got but i lived on 2 acres when i was renting shop space. after spending $10k on rent, and having a few years working as a draftsman and putting up metal buildings befor i became a sign guy............i started looking at putting up my own. i got a commercial building kit, 140 mph wind load(cant build less to code)i ordered a 24' X 30' X 16' tall for $8500.00 delivered. now i had a couple guys do concrete work for the floor $2000 and i supervised them. the wife and i put up the building. had to buy doors, and i did the electric install, inspected by code, and did most of any other stuff need to do. its been standing since 2005 and requires little maintenance. iam in the process of adding a 10' X 22' X 8' on one end. i got the concrete poured for it and its going to be a wood frame attached to the metal building. want it for my pottery studio. as i am not really a full time sign maker at 70, the vinyl and computer are in a room at the house(60 feet from shop)and shop os mostly for paint and building signs.

 

[CanuckSigns]

we don't own, but went through the process of trying to buy a few years ago, the city turned us down at the last step due to zoning.

From what I remember, the Mortgages were different, you don't renew after your "term" is up, if you sign a 25 year mortgage, you pay the same bank the same amount of money for 25 years, which is nice because it allows you to know exactly what you are paying.

I still wish we pushed back on the city more and bought that building, at the time the process seemed so daunting and expensive, but speaking to clients who have had to apply for zoning changes, it's not as bad as it looks. We were told we would be looking at a minimum of $10,000 to apply for the variance, with absolutely no guarantees that it would go through, and no refunds.

My advise, go in with a level head, commercial real estate doesn't "fly off the shelves" like residential does, you can afford to sit back and weigh your options.

 

[Billct2]

We looked at buying many years ago, still wish we had. The problem for us was finding a comparable property (size, 16' overhead door with 50' behind it etc) within our limited geographic area. We did find one property that we were considering, till we discovered it had been "remediated" because of toxic contamination. We would have taken on the responsibility going forward if something else were found. That's one of the big issues around here with industrial property, most of it was contaminated sometime in the past.
Something to put on the list when looking.

 

[OldPaint]

this is one of the "trick" things i built in the shop.......200amp cover)))) 4 X 8 storage.

 

[tiredcreations]

Buy the building personally and have your business rent it from you. You can still write off the rent, and it will protect
the property if the business ever goes under. You will have to send yourself a 1099 MISC for rental income

 

[Gene@mpls]

Buy the building personally and have your business rent it from you. You can still write off the rent, and it will protect
the property if the business ever goes under. You will have to send yourself a 1099 MISC for rental income

This...

 

[JJM7288]

We purchased our first commercial building in 1994 using a bank loan and SBA 501 loan. You will need a commercial appraisal, phase 1 and phase 2 encironmental inspection. In 1994 the appraisal and environmental studies cost around 10k. I had to remove the old underground oil tank. When We purchased the building next door the previous owner financed 65% of the price over 39 months. In my opinion buying from a motivated seller, willing to finance 50-75% is the way to go. Don't cut corners, pay for the environmental study so you know what's in the dirt. We own the buildings personally, leasing them to our company and have lived off the rent for twenty years.

 

[ams]

If you are buying land, I heard that it takes up to one year to transfer over when you buy it.

 

[SightLine]

We are buying ours...... A few good tips already noted. Setup a separate LLC that you (or you and your wife) own and buy it under that. You then rent to your sign business. As mentioned it gives you some protections by keeping the property and the sign business as separate businesses. Also as JJM mentioned there are some things that you are going to need if you are going to get a commercial property mortgage and it is a VERY slow and expensive process when compared to a traditional residential mortgage. The two environmental studies are pretty expensive as is a commercial appraisal. We made the jump about 3.5 years ago going from just 1500 sf that we were renting to a property with 3 buildings totally 21500 sf!! My electric bill here is more than my rent was there.... However for me it was a "in the right place at the right time" thing and we got an incredible deal. What made it an amazing deal was we found a property that was a bank owned repo. That ended up saving us a ton in more than one way and is something I'd encourage you to look for. Since the property had been foreclosed by BOFA it ended up sitting empty for a few years.... First for the prior owner to go through bankruptcy then BOFA had to go through the whole foreclosure process and take possession and title. Part of the process was that BOFA had both the phase 1 and phase 2 environmental studies done and they were willing to provide those to us which our bank accepted as being recent enough to not require us to have those done. So we only had to pay for the commercial appraisal. The other key thing was that BOFA is not in the business of sitting on commercial property and when they finally had the foreclosure process completed they listed it for sale through a commercial broker. What is key here is what BOFA set as the asking price..... they just wanted what they were still owed from the prior owners mortgage. For the property we have that was literally only 1/3 of its value! The prior owners had already paid off two thirds of the value. That was also a key element for us and allowed us to get a much larger property than we really needed. A commercial mortgage is going to require a LOT more "skin in the game" ie. down payment than a residential mortgage. With the loan to value ratio so much in our favor that made things a lot easier to pull off.

So - look around hard for bank owned properties. Banks down want to sit on empty properties. It seems just about any other property the owners would rather it sit empty for ten years rather than reduce their asking price. There are a TON of other things to keep in mind as well. Since you are not renting, when something breaks its 100% on you. HVAC went out, get ready to pony up some $$$$. Property taxes are of course on you. The insurance you want is in a whole different ballpark than renters insurance. If you have an inside bay then a shop keepers policy is a good idea which is not very cheap on top of your commercial liability, umbrella policy, etc. The larger the property, the more the maintenance and the more that can break and need repairs and it can all get VERY expensive. Just maintaining the outside of the property can be a lot to do like landscaping, keeping the parking lot clean, grass cut, etc. Look very very close at everything. Check the property records and determine what the zoning is and allows for. Consider future use as well... Look close at things like storm water drainage, does it end up with a small pond in the front parking lot when it rains? Are things up to code like the electrical and plumbing? Is the parking lot asphalt and is the asphalt in good shape? Repaving is not cheap.... Look at things from a security point of view as well. A lot of things you will be able to "build to suit" yourself under the radar of the local building officials but modifications beyond certain points like significant electrical modifications, plumbing/sewer modifications, etc. will require building permits, licensed contractors, possibly stamped architectural drawings, and inspections. Prior to full use you will need the local building official to sign off as well as your local fire Marshall (you are going to need a buttload of fire extinguishers all over the place as well as clear exits). Both will need to do an inspection. I'd suggest getting them in BEFORE you start on any modifications if you plan on doing said modifications yourself in private. Oh, going to need a trash service to bring you a dumpster in... Its a LOT to consider very carefully when looking at a place and you better consider everything you possibly can as surprises can be very expensive.

Do I have any regrets buying? No not really but it has been a monumental task and I am still working 70+ hours a week since we got the property just keeping up with everything. Two of the buildings were just storage. One just under 10000 sf which I am slowly working on finishing out about 4000sf in the front into business/office space. I plan on leasing that entire building out.... The third building is a long narrow 1800 sf storage building which I am just storing tons of crap in.

 

[SqueeGee]

Lots of good advice. I recommend meeting with your local SBA office/advisor. Investigate their 504 loan program to see if it's a good fit for you. Purchase it in a new LLC and rent it to your operating company. Be patient. Purchasing a commercial property is a process which can be very frustrating but also very rewarding. If it was easy, everyone would do it.

 

[Manning]

We bought our 50' x 75' Metal Building 13 years ago. We paid 65,000 for the building and spent about 30,000 on the interior(Doing as much of the work ourselves as possible). It was as struggling start/alternator business and he was motivated to sell. We wrote a check a few months ago for $12,000 and paid it off. There wasn't much extra money the first couple years after the move because of a lot of unseen cost involved with the upkeep of the 2 acres that came with it, higher rent, flood & building insurance, higher light bill, etc...

It was a great decision for us. It's our home away from home and I would do it again.

I read an article in signcraft around the time we opened(1999) from a retired sign painter about his only regret was not purchasing his building. He said the day he retired all he had to show for years in the biz was a wore out box of brushes. I knew then what I wanted to do.

 

[Silvertip]

Entrepreneur fund with bank loan info

We looked for a while before we found our current location to purchase. Our credit was good and our business showed enough profit but we didn't have the 20% down payment.
Our banker helped us get gap financing thru the local Entrepreneur Fund so we only had to come up with the closing costs.
The thing that really helped us get financing in the end was that we had been very proactive in the 3 previous years about speaking with local banks regarding mortgage funding. We basically opened up our doors and gave tours and sent out our P&L statements every fall. Over time (3 years) they became to realize that we did in fact have a plan. We did in fact make profits and we did in fact intend to stick around and be valuable business owners.
In our experience it really was kind of "the squeeky wheel gets the greese" so to speak. Banks are pretty picky about who they lend to in the small business arena so inviting them in to my shop every year showed them what we did. How we improved every year and in the end we had more than one bank vying for our mortgage loan.
It is a daunting process and if you think you work hard now....you will have a whole bunch of new chores that come with commercial real estate ownership but it does help on the taxes at the end of year and you will build equity with every months payment instead of someone else getting the money.
Good luck in our experience-it was a great decision but we went in with a plan from the beginning.

 

[Nuagedesigns]

Thank you to everyone who posted for all the insight and information on this topic. We began our search and are currently looking at a property with a 6,000sqft steel building with offices and plenty of shop space. Located on a highly traveled state road. Also has a large lot to possibly add more buildings In future for rental income. Still doing some research and trying to figure out the financing end. We have just about 1 year left on our lease. The biggest thing that worries me is the actual logistics of the upfit and moving process to the new place. It seams as though I have accumulated quite the inventory of "stuff". 8 head automatic printer, 4 head embroidery machine, 2 head embroidery machine, ShopBot 4X8 Router, 54" Printer, 54" Plotter, 54" Laminator, lots of Desks, PCs, Shelves galore, 5x12 work table, decent inventory of roll materials as well as flat substrates, etc. I am thinking of getting a 53' trailer and just palleting everything but worried about the time to break down shop and put back up. And how to keep customers happy during the move. I foresee needing at least 1-2 weeks to be fully operational start to finish.

I can only hope for the best.

 

[ChaseO]

I am thinking of getting a 53' trailer and just palleting everything but worried about the time to break down shop and put back up. And how to keep customers happy during the move. I foresee needing at least 1-2 weeks to be fully operational start to finish.

I can only hope for the best.

We are currently in the process of moving, well, in the process of getting ready to move. We bought a new shop 2 months ago, and I have been running 7 days a week, and still have only spent two days on working on the renovations. I'm scared the move will make some people mad, but when it comes down to it, I will be closing for a week to get the move to happen. The only thing I wanted to comment on was your 53' trailer idea. I don't think this is a good idea for your printers, and it will force you to keep after it, and seem like a huge task. I plan to make our move in phases, that way I don't get too overwhelmed by it all. Dad has been in our current shop since 83, and we have more than a ton of stuff to move.

 

[synergy_jim]

We bought ours. It was a steal because we took a huge risk on a run down property. It paid off big time though.... Zero EPA studies and Zero issues with the bank.

I've heard horror stories though.

 

[ChaseO]

That looks like it was probably quite the undertaking. Cool building though!

 

[winterk80]

We are currently in the process of moving, well, in the process of getting ready to move. We bought a new shop 2 months ago, and I have been running 7 days a week, and still have only spent two days on working on the renovations. I'm scared the move will make some people mad, but when it comes down to it, I will be closing for a week to get the move to happen. The only thing I wanted to comment on was your 53' trailer idea. I don't think this is a good idea for your printers, and it will force you to keep after it, and seem like a huge task. I plan to make our move in phases, that way I don't get too overwhelmed by it all. Dad has been in our current shop since 83, and we have more than a ton of stuff to move.

Rent a moving van or company for the day. Or rent a semi, I've moved a 6500 sq ft shop in one day racking, machines and all. Plan on doing it on a Friday and let your employees know you will be working Saturday and possibly Sunday. Plan all your electrical and ventilation in advance. No reason you shouldn't be moved and 75% up again by Monday.