There are two major reasons why entrepreneurs should consider purchasing their commercial property, despite of market conditions.
While many business owners contemplate to own commercial property, these two reasons will help you understand the benefits.
Increase Business Valuation
Owning the property where you operate your business is an asset. An asset is any tangible or intangible resource used to generate cash flow, reduce expenses, or provide future economic benefits for a business or an individual. Assets contain economic value and can benefit a company’s operations, increase the value of a business, or raise an individual’s net worth.
There is a double benefit. The business owner is and individual, who owns the business. When the business acquires an asset both the business owner and the business benefit from it. Owning the commercial real estate where your business operates will add an asset to the business and the owner. By adding an asset, you increase the value of the business. This will reflect on the balance sheet. If you must obtain financing, no worries. The asset will still have value. The value is determined by the equity of the property. In the long run only two things can happen, the debt value goes down and the real estate appreciates over time. As this happens the equity will increase. In this in the long run will increase the business valuation. If one day you want to sell, you are selling a business that owns commercial real estate. That has more value than just selling a business, without real estate.
Asset and Income Protection Reason number two, is that owning commercial real estate give you a future asset and income protection. Let’s consider what would happen in an economic recession or depression. Let’s assume a bad recession hit, like 2008. In 2008, many businesses need to close their doors. However, there were business owners who owned their commercial property. In 2008, some of these commercial property owners might have fallen apart, while their real estate investment survived. If this were to happen, you can do the following. First, you can lease out the property and generate rental income. Second, you may be able to sub-lease a portion of the property to reduce costs and replace income that is lost. Last, you can sell the real estate if you are strapped for cash. Therefore, owning commercial rea estate can become and asset and income protection. If your business slows down too much you can replace income or you have an asset that you can sell to generate a lump-sum of cash. Owning the commercial property where your business operates is always a good idea for these two reasons and others.
By, Gil Zapata
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