How You can Own for LESS than Leasing
Own for Less than Leasing!
Asking Price: $795,000
Take Advantage of this Owner-User Opportunity
You may not realize how much money your business is
losing every year simply by leasing your business space. It is not just the
annual rent increases or the rising utility costs of aging building systems. By
not owning your business property, you are forfeiting substantial financial
benefits that could significantly impact your business.
Businesses that buy commercial real estate typically occupy more than
51% of the commercial space. The remaining space can be rented out to tenants,
creating a lot of potential rental income.
Let’s look at 640 East Vista Way. The office
is a two-story +/- 3,150 SF building with a lot size of +/-15,899 SF. The
second floor is currently combined into one suite, acting as an ideal space for
an owner to occupy. The 1st floor contains three suites ranging
from 350 SF to 400 SF with a 400 SF car garage.
This property is
especially rare because it has a unique layout allowing for a large diversity
of potential tenants. With 25 parking spaces and a garage, the occupants range
from retailers, attorney's offices, CPA, insurance office, dental practice,
professional offices, salons, automotive shops and more. The tenant income
could benefit the owner around +/- $2,325 per month.
The graph below contains a break down
of the comparison between owning VS leasing 640 East Vista Way, resulting in an
annual savings of $6,732 if you are an owner. A study by Northeast Bank found
that over a 15-year occupancy period, leasing commercial real estate costs as
much as 86.6% more than buying commercial real estate.
IT IS
NOT ALL ABOUT THE MONTHLY SAVINGS!
It is
also crucial to weigh the long-term benefits of owning a property as well as
the monthly income.
1.
Equity Upside
The
beauty of buying commercial real estate is that your monthly loan payments help
you build equity. This is because a portion of those monthly payments goes
towards paying down your principal loan amount. When you eventually sell or
refinance your property, you can extract the difference between the remaining
loan amount and the current fair market value as equity for your business. This
contrasts with leasing commercial real estate since lease payments go to the
landlord and no principal is paid down.
2.
Asset Appreciation
When
you own commercial real estate, you can also take advantage of asset
appreciation. This appreciation represents the increase in the value of your
property over time.
4. Tax
Benefits
Those
who buy commercial real estate can deduct the following when calculating tax
payments:
- Interest expense
- Depreciation expense
- Non-mortgage related expenses
These
expenses can be multiplied by an average corporate tax rate of 35% to find the
dollar tax savings. However, since the full amount of the monthly loan payments
can’t be deducted (only the interest expense), the tax benefits when buying
commercial real estate are typically lower than leasing commercial real estate.
Most
mortgage-related expenses, such as closing costs and origination fees,
typically can’t be deducted for tax purposes.
5.
Control Your Property
When
you buy commercial real estate, you control your property. When leasing,
landlords have certain rights built into the lease. For example, many landlords
negotiate rental increases, giving them the legal right to raise the rent on a
tenant’s lease at least once a year.
This
means that when you lease a commercial space you might be at the whim of your
landlord. If average rental increases are around 3% a year, and if you have a
36-month lease, your rent can increase as much as 9.3% over the life of the
lease, if not more. This can create instability for a lessee.
However,
situations like these won’t arise when you own your own property. Instead,
you’ll have peace of mind that you have a fixed monthly payment for as long as
you stay in the space. This means that your monthly payment will not be tied to
the commercial rental market.
Contact Jarvis Leverson to learn more about to owner-user opportunity presented at 640 East Vista Way. (619) 469-3600
DISCLAIMER: This blog/article has been curated from an alternate source and is designed for informational purposes to highlight the commercial real estate market. It solely represents the opinion of the specific blogger/author and does not necessarily represent the opinion of Pacific Coast Commercial.
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