Buying a commercial building - what to consider, ask?

[andy]

Why buy when you can rent? You should compare the "real" cost of ownership with renting. If you find the numbers close - renting would win out by a long shot. One of the key reasons people own is long term upside potential (they want to believe the BS that real estate goes up in price). RE should only go up in price as wages and job growth increase - anything other that causes an increase is speculation a "bubble" and will revert back to the mean over time. Most people reading this will say no - my property values move up every year per my assessment ext. -- yes but if you subtract out inflation your house has not gone up at all.
My advice rent and buy a lottery ticket every once in awhile -that will provide a much better upside potential than the physical real estate with little or no risk to your family's future. (Unless you believe the USA is about to enter a new period of innovation and growth unlike any time in history).
If you haven't been watching the government spending (you should) by the numbers if they don't raise the debt ceiling so they can continue to spend money they don't have we will be in a depression by definition. Government borrowed spending makes up 12% of our GDP (borrowed money) that has to be paid back at a higher rate in the future. From where I am sitting the future is not as bright as most on this blog will have you believe - maybe they know more or less than me thats for you to decide.

Good luck!

Future capital gains aren't really an issue here. Sure, it would be nice if your building was worth a chit load more at some unspecified date in the future but it's not essential; unlike property speculators we don't have to rely on short term capital gains to make money.

We rented for 15 years and I can't think of a single advantage of doing so. Our new building is 4 years old, costs less to insure because we are free to shop around for the best deal. Maintenance is not going to be an issue for many years due to the age of the building and the modern construction codes used on new buildings. When maintenance is required we'll shop around for the best deal.

The exact same building costs 1/3 a month extra to rent... the contracts are all "upwards" only with rent increases every 18 months. After a standard 5 year lease the tenant is back on the street with nothing to show for 5 years of work and more than $70,00 spent on someone elses mortgage.

The entire world economy is built on Fiat money and fractional reserve banking... once you start researching these you discover debt & money are abstract concepts which are both created out of thin air... the store of value comes from the fact that people "believe" that a small piece of paper with President Lincoln or HM the Queen printed on it is actually worth a great deal more than the sum of the paper and ink used to make it.

If you do follow the doomsday scenario you predict one could argue that it is better to have your financial resources manifest in a physical, tangible object rather than a pile of printed paper or digits on a computer screen... it's harder to steal a factory than it is to delete numbers or devalue fiat currency.

 

[ddarlak]

All I have to say is if you can't pay cash for it...YOU CAN'T afford it. No one can argue differently....

no one???? sure i can.

I bought my building 3 years ago with a home equity loan and three credit cards.

I was paying $14K/yr in rent on my leased building, the one I bought has 5 apartments in it.

The three credit cards i used (over $30K) are paid off and the home equity is not far behind.

I didn't look at as I couldn't afford it, rather I couldn't afford not to take advantage of the oppurtunity.

debt is not a bad thing as long as you can control it or even profit from it.

 

[visual800]

I would stay like you are and keep on trucking. thats whats wrong with folks now, they make $2 extra and go out and start looking for a new truck!

A new shop is great but you also gotta redo living quarters uppstairs in a commercial zone, you might be opening yourself up to a world of hell unless you really got in there and did a good inspection on it. i dont know bout hwere you live but around here they would eat you up in all kinds of fees

 

[dgtlrob]

After a standard 5 year lease the tenant is back on the street with nothing to show for 5 years of work and more than $70,00 spent on someone elses mortgage.

The entire world economy is built on Fiat money and fractional reserve banking... once you start researching these you discover debt & money are abstract concepts which are both created out of thin air... the store of value comes from the fact that people "believe" that a small piece of paper with President Lincoln or HM the Queen printed on it is actually worth a great deal more than the sum of the paper and ink used to make it.

If you do follow the doomsday scenario you predict one could argue that it is better to have your financial resources manifest in a physical, tangible object rather than a pile of printed paper or digits on a computer screen... it's harder to steal a factory than it is to delete numbers or devalue fiat currency.

Really -- real estate is a consumable you used 5 years up of an item that has a life of 60 to 70. (after every meal I don't get all sad that I have nothing to show for the food I just consumed). All capital assets (plant/equipment ext.) depreciate over time they need maintenance and without it they will depreciate even faster. Have you ever seen what happens to a building when it goes unoccupied for a period of time? Even if you own your building or house outright (STRONGLY RECOMMENDED) just remember the city has first rights. They can and will raise your property tax to sustain themselves. (Most cities went on a spending spree the last ten years fueled by DEBT -- and if tax receipts fall they will just raise the multiplier).

Yes we are on a fiat system (money cant exist without debt) however that system is nearing an end looking at the numbers. As you correctly pointed out the trust will breakdown and people wont except the fiat dollar as they once did. The fiat system is not a problem - it it the fiscal irresponsibility of the government spending too much. My point is currently the government is spending 40% more than they take in (borrowing) this accounts for 12% of the GDP-- subtract that out since the government cant contue this without making the US dollar worthless -- You have a depression by definition. (THIS IS FACT - NUMBERS DON'T LIE) I am not a doomsdayer I follow the NUMBERS and know them better than most. (Same holds true for all fiat currencies POUND, EURO ext.. - the Western banking system became the worlds and now it is a race to the bottom). The real question is what currency will destroyed first,second, and most importantly last.

I have been advising others to be defensive as possible with there finances /business in preparation for the coming years. People should prepare by getting there fixed costs as low as possible and be able to withstand a hit of a drop in business by 50%. Go ahead laugh now these are not fun times we are headed into -- projection for the S&P will hit 400!

Do you not believe that if and when Greece, Spain ext. default it will have a consequence on the world banking system - not unlike Lehman just more severe (everything is connected thanks to CDS,CDO ext..).

 

[artbot]

one thing to add to this conversation as far as living in an unrestricted neighborhood.

currently i've got two shipping containers that are 40' parallel i'm spanning a roof across those for an indstrial space. i have a 1400 square foot quanset tent (120 mph wind rated), a home full of equipment. will add next year a 28x60 portable double wide office. none of this is taxable within the "property tax" code. why? because it's portable. i could disassemble and ship it across the state in about a month if i was forced to. no slab or foundation means "not property".

YEEEEha! suck it brazoria county! i digress. that's 6520 square feet of "not building".

 

[JimJenson]

The MOST IMPORTANT consideration with commercial property (in my opinion), is to make sure you have environmental studies conducted on any commercial property you're looking to purchase. One of our properties had four gas tanks buried underneath (from about 80 years ago) and we had to mandate the seller take the tanks out and provide a clean survey. If you get stuck with a property that used to be a gas station or have any type of environmental issues, you'll probably be responsible after closing (again, in my opinion, I'm not an attorney.)

I agree 100% with this. I will add that you never know what former owners, tenets, or even squatters may have stored or dumped on the property.

 

[shakey0818]

I would love to see the enviormental study done on the property mosh ownes.Animal remans,chickens,ducks,deer,turkeys,people,hydrolic fluid,oil,gas,used shot gun shells,old farm equiptment burried,broken sign parts & a neighbor or two.:ROFLMAO:

 

[artbot]

mosh's property sounds awesome...! the more post apocalyptic the better!!!!

 

[stix]

You have rec'd plenty of good advice, however I would keep a couple things in mind.

I would seek a property that is 5-10 acres with no HOA.

I would seek a property that you could have a "garage" with an accessory apartment above it which would be separate from your house.

Have a separate driveway or entrance for customers.

Planning boards are more flexible with "garages" being converted for business use than permitting a business in a residential neighborhood.

I would have this operation 20 miles outside of the city limits because acreage tends to be less expensive.

 

[dgtlrob]

Gold, silver coins to be legal currency in Utah
http://hosted.ap.org/dynamic/stories/U/US_BACK_TO_GOLD?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2011-05-22-15-23-20

This is not good news for people thinking things are getting better -- I really don't think it is a good time to buy..

 

[signmeup]

Get one with heated floors. You'll never go back.

 

[dgtlrob]

The American dollar has lost 95.6% of its value since the creation of the Fed. Apparently, you used to actually be able to buy things with only pennies.

In 1971, the average new house cost $28,000, now it's $273,000 - inflation of 975%.

In 1971, the average monthly rent was $150, now it's $750 - inflation of 500%.

In 1971, the average cost of a gallon of gas was $0.40, now it's $3.80 - inflation of 950%.

In 1971, the average new car price was $3,430, now it's $29,200 - inflation of 851%.

In 1971, a US First Class Postage Stamp was $0.08, now it's $0.44 - inflation of 550%.

In 1971, a movie ticket ran about $1.50, now it's about $7.89 on average - inflation of 526%.

Now, here's the kicker: in 1971, the median household income was $10,300, now it's $47,000 - wage inflation of only 456%. Hmmm, indeed.

 

[artbot]

one thing that was a deal breaker on the property that i was doing in town was that i was designing it as a homestead business. the work/live properties are specially financed properties that are privately developed. this usually can't be done as an individual. bankruptcy laws in many states prohibit banks from doing loans on work/live or homesteaded businesses. in fact when applying for a loan for a building you will be asked to sign a form denying that you will ever be living there. of course you can skirt the rule.

in texas for isntance, you declare bankruptcy, your business is up for grabs as a leinable property, but your home is not (texas is a great place to do business, the best). so you could fold your business but not "lose" your business because you live there. in my neighborhood there isn't a HOA (it's an extremely manicured area) but there are general rules about dumping, messy property, mowing, etc that the sheriff's department can enforce. other than that it seems that i could start a dynamite factory back there and i'd be fine as long as i mow my lawn.

 

[dgtlrob]

in fact when applying for a loan for a building you will be asked to sign a form denying that you will ever be living there. of course you can skirt the rule.

What you are referring to as "skirting" is called mortgage fraud -- not very good advice!
In Texas lying on a application like that will get you 3 to 5 years in a very special place & yes the bank would have the right to seize all assets including personal property because there was fraud ..

 

[signswi]

Seriously reconsider living on the same property you run your business from. There's a million reasons why it's a bad idea but a few off the top of my head: 1) employees near your kids, customers near your kids 2) customers know where you live immediately, never know when you get some nutjob that wants to harass you 3) it's not very healthy--work/life separation is good for stress 4) taxes get really weird, plus it might eliminate your llc or corp protections from pass-through litigation as you'd have a harder time proving you have proper work/life separation in court, might get ruled a sole/joint proprietorship 5) what if you sell the business or the business goes under? you're out your house too! 6) as dgtlrob points out, it's probably not legal in many areas -- I know at least one couple that built and lost their dream house because it was in a commercially zoned area

etc. x millions. Not a great idea, plus to me it just doesn't seem very professional.

 

[John Butto]

Osama had his business and home at the same place and don't think it work out to well for him.

 

[TyrantDesigner]

There are major bargains out there...

Must be the area ... most of the commercial properties in this area are going up. Let alone I don't see how must start ups survive past a year since the average monthly lease on a 1k sq foot is about $2k+ ... though there IS a piece of property in downtown that I have been eyeing for if I ever win the lotto ... it's a 14k sq foot for $350k that has 2 stories, 7 bays and a huge rear parking lot. .... worth it for the area just not for right now in the business.