Your Landlord Just Listed Your Building: Ready to Buy?
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Investing in commercial real estate and expanding operations create questions—and often concerns—for small business owners. Despite the trepidation such a decision can bring, Andy Brahms felt six years of leasing was enough, and decided to grow and revitalize his company by purchasing real estate in 2004.
When his landlord decided to sell the building that housed Brahms’ company, Armchem International Corp., Brahms jumped at the opportunity to invest amid a buyer’s market.
“I realized that I needed to expand my business, not cut back,” says Brahms, whose company is a B2B distributor and manufacturer of paper, chemical and safety products in Fort Lauderdale, Fla.
Before moving forward with the purchase, Brahms needed to answer some important questions.
Key questions to ask
Tom Kirbo, president of Atlanta-based SK Commercial Realty, advises small business owners to think through the complete financial picture of purchasing real estate as you contemplate the decision.
“How you handle your decision will come down to a few critical questions,” Kirbo says.
Can you handle the costly initial expenditure?
Will the building meet the short- and long-term physical needs of your business?
Does buying the building make financial sense?
Can you afford the loan down payment and ongoing mortgage payments?
Can you afford to forgo financing and pay cash?
Are you prepared to take on property management activities or hire a property management company?
If you are unsure or need more time to answer these questions, Kirbo says leasing might be a wiser option in the interim. However, leasing can limit the options you have for increasing your footprint, as Brahms had discovered.
Ownership success story
After deciding to purchase his building from his landlord, Brahms proceeded with an aggressive series of expansions. He created a 5,000-square-foot call center, hired 15 employees, including sales and warehouse staff, and partitioned 4,000 square feet for storage.
He also became a landlord to six other tenants, built business equity through his expansions and enjoyed the fact he could manage and configure the work areas to best suit his needs, rather than having to adhere to someone else’s rules.
Although ownership has been good for Brahms and his business, he understands the downsides. First, the expansion did not immediately grow revenue faster or lower costs. However, he views the move as a long-term proposition that will pay off in the future. Second, he knows if a tenant were to leave, he would have to take time away from running his business to fill the vacancy. Third, he knows if sales were to slow down, he’s responsible for much more now than just paying the rent each month.
He also has encountered several unexpected repairs that have resulted in increased maintenance costs. All things considered, Brahms says he would not change a thing about his decision:
“Growth required a larger footprint. After crunching the numbers and laying out the pros and cons, it just made good business sense to buy the property.”
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U.S. Small Business Administration (SBA) loan programs provide longer terms and lower down payments than conventional financing, allowing you to optimize cash flow and focus on operating and growing your business.