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Commercial Office Condos - A Primer

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In our office space Blog we have discussed a great deal in the past about how troubling of a time it is for the Commercial Real Estate market thanks to overly abundant unemployment and the recession.  With every challenge there is usually an opportunity.  In this case, a down markets is a great time to buy commercial real estate.  The old adage of buy low and sell high can be applied to this time period. Of course, it is always scary to get into an investment in a down market, but if you can do it now, you will undoubtable be near the bottom of the market with no where to go but up.

One of the best ways to get into commercial real estate is to buy property that your company can use. One of those ways is to buy a commercial condo. The SBA may even be able to help too with a loan guarantee that would allow you to only put 10% down. A great use of leverage.

Here is a primer from CommercialCondos.com to get you started in understanding the  concept.

"Many people understand what a residential condominium is because the concept has been around for generations. In order to understand commercial  condos (also called "non-residential" condos), we can apply many of the residential guidelines, but with the added benefit of potentially increasing profits for your business.

Following is a simple list of frequently-asked questions that will give you a quick and thorough education about commercial condos.

As a business owner who currently leases my workspace, how would I benefit from buying that space?

The most obvious benefit is that you'll own the property rather than rent it, so over time it will gain equity and become a valuable long-term asset. If you leased your 1000 square-foot work space for $30 per square foot for 10 years, you would spend $300,000 (excluding any annual increases) during that time, but all that equity would go to your landlord instead of you. If you'd purchased the space, each year you would be paying yourself and increasing your equity in the property. You could also have multiple tax benefits that you'd not be able to take as a tenant, such as mortgage interest, property tax deductions and deductions for repairs and depreciation. As an owner rather than a tenant, you'll have complete autonomy and freedom to create the exact space you need for your work. You can redesign and remodel to your heart's content.

What are some of the less obvious benefits?

If you're moving into a new location, a lease option (leasing now with an option to buy later) can lock in the purchase at today's price. And if you purchase more space than you need, you can rent out the remainder. Those rental units will pay for themselves while building equity for you.

How do I purchase a commercial condo?

Many business owners don't realize that while commercial banks are hesitant to make loans, the Small Business Administration (SBA) is actively offering up to 90% financing to established businesses for the purchase of office, industrial and retail space. There are many financing options available, but the financing can be complicated because the lender won't necessarily understand what type of property it's dealing with. Is it residential? Commercial? Retail? What kind of loan is it? That's why we suggest that you work with a trusted banker or broker who can bring in a team of experts (accountants, lawyers, architects, as needed) to help you find the best loan and the best property.

Will I have to pay property taxes?

Yes, because you are the owner of a piece of property. But like a home loan, the property taxes can be rolled into your monthly loan payment.

Some residential condo complexes have homeowners associations and dues to pay. Is this true with commercial condos?

Yes, there will be an HOA (homeowners association), and there will be monthly dues. But these dues pay for property maintenance, landscaping, insurance, professional management, and more. If you owned a house, you would also be paying for these things. One advantage of an HOA is that it guarantees that these maintenance issues will be addressed and that the property will be well cared for.

How are the common areas like parking lots, lobbies and walkways maintained?

Property maintenance will operate the same way it did when you were a renter. The developer, or owner of the property, will turn the management responsibilities over to the HOA and the board of directors (which is usually made up of individual owners like yourself). Usually a property management firm will be hired and paid from the HOA funds.

What does the board of directors do, and how involved will I need to be?

The board makes day-to-day decisions about caring for the property. For example, the parking lot may need to be re-paved, or the sprinkler system may need to be upgraded. The board prioritizes these various needs, seeks bids from vendors and makes sure the work is completed. As an owner, you may choose to serve on the board or not. It's not required."

If you are interested in finding out more, request assistance finding commercial real estate for sale from our top local buyer representatives.

Also check out our lease vs buy and financing alternatives articles.

 

Buying Office Space , Commercial Real Estate , Investment Real Estate , Office Building Sales , Office Space Negotiations , SBA Loan

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