Buying a Commercial Building provides challenges

Compiled by Iain Mackenzie

There are some long-term benefits to buying a commercial building to house your business operations: you'll be master of your own domain, you won't face rental increases and the property may very well appreciate in value. Also, costs associated with the loan as well as mortgage interest and depreciation in the value of the building may be tax-deductible.

The downside of owning includes the initial capital investment which can negatively impact your cash flow, and you'll be responsible for fixing and improving the building for your own and any other businesses in the building.

Due diligence

Presumably, the building that you've found satisfies your must-have and some of your wish-list criteria: it will help you do more business, it projects an appropriate corporate image and can do it all economically. However, before any transaction is finalized, you'll have to perform some due diligence to minimize risk to your business and ensure the building is a sound investment.

Beyond the physical condition of the building, many intangibles have to be evaluated. This means learning the history of the property, and examining all liens and obligations to ensure the property meets your requirements.

Building owners with commercial tenants are vulnerable to sudden economic downturns; a fully-occupied building with a major tenant can become an under-occupied building if that tenant goes under. So the relative security of that income stream has to be evaluated as well as the physical assets. Payment histories and tenant credit files should be examined to determine the degree of risk involved.

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