5 Perks of Commercial Real Estate Ownership

One of the biggest decisions you’ll face as a small business owner is whether to buy or lease your space.

If your need for space is evolving, you should familiarize yourself with the various pros and cons of each option. Here, we’ll dive into five key advantages of owning commercial real estate:

1. Turn an Expense Into an Asset

Virtually nothing in business comes without a cost, so it’s a bit too simplistic to say that paying rent is “throwing money away” – but it certainly doesn’t offer the long-term investment potential of buying your own storefront, office space, or industrial facility.

Over time, your monthly mortgage payments will build substantial equity that you can convert into cash or borrow against with an affordable term loan or line of credit. And while investments never come with guarantees, commercial real estate has historically delivered very strong returns. Depending on the location, the economic conditions of the moment, and other factors, commercial properties have a ROI of between 6% and 12%. That’s greater than many major equity indices. The purchase of a single-family home may yield an ROI of 1% to 4%.

2. Add a Revenue Stream

In most cases, in order to qualify for a basic commercial mortgage, a business has to occupy at least 51% of a property it buys. But that leaves up to 49% of your square footage that you can rent out to establish a secondary source of income.

If you need office space, you could consider purchasing a multistory building and leasing out the ground level to a retail business or eatery that would benefit from the accessibility and visibility. If you need a production facility and expect to grow your operations down the road, you might be able to lease extra space to smaller startups until you need it yourself.

3. Enhance Your Rental Income

Even if renting out a portion of your square footage is already a key element of your growth plan, you may not have considered all the ways you could maximize and diversify this type of income flow.

Instead of leasing office space to a single business, you could lease to hybrid professionals looking for a dedicated work station with shared amenities. Renting out event and meeting space can also bring in extra cash on an ad hoc or ongoing basis. Charging your tenants for premium features like parking, storage, and cleaning services may be another option. And if your property is in a high-traffic location, consider selling outdoor ad space.

4. Enjoy New Tax Benefits

If you lease your space, you can usually deduct your monthly rent payment as a business expense – but owning your own property can provide significant advantages at tax time, too.

In nearly all cases, property owners can write off mortgage interest – and mortgage payments are interest-heavy at first, so this is a front-loaded benefit. Additionally, while real estate tends to appreciate in value over time, the IRS allows owners to depreciate commercial properties over a set period (usually 39 years but sometimes less). While the IRS may recapture these deductions if you later sell the property at a gain, depreciation can offer significant year-to-year savings. Consult a trusted tax advisor.

5. Enjoy More Stability and Control

Some of the most important benefits of property ownership are the hardest to quantify in dollars and cents.

For starters, you may have greater peace of mind knowing that you won’t have to deal with rent hikes or having to relocate unexpectedly. You may also have far greater latitude when it comes to the use of your space. You won’t be up against landlord-imposed restrictions, and you can remodel the space to suit your needs (and retain the value of those capital improvements). Plus, you shouldn’t have to put up with problematic co-occupants – you can have the place all to yourself or choose what type of tenants you lease to.

Solve Your Space Needs

When it comes to borrowing and banking, you need a trusted partner who understands the unique needs of your business. A WesBanco Commercial Lending Officer can walk you through the details of a commercial real estate loan.

For expert advice and a flexible mortgage solution your business can grow with, visit your local banking center or get in touch with the form below.

Get In Touch