My friend Mike called from his truck in
route to look at a piece of commercial
property on the edge of town. Like many
of you, he owns a residential systems
integration company that is growing, and
he is planning future expansion.
|Mike Detmer is the vice president of sales and
marketing at Russound. He can be reached at
“It’s a bit of a stretch,” Mike told me.
“But there’s a good chance I can rent
the back building to another tradesman
which will offset the mortgage payment
to below my current rent,” he said
reassuringly. Mike started looking to
become a property owner after projecting
his business’ P&L over a time horizon of
five years or so. The exercise convinced
him that the right move now could pay
off big in the future.
You, too, may come to the same conclusion when you plan how to
handle one of your biggest expenses: the rent you pay now and in the
future. Whether you intend to keep your company’s size the same or to
expand it, controlling overhead costs is a key to its security. When you
look closely, rent costs may be greater than you think. I remember a
conversation with Paul Starkey of Vital Management who told me that
rent costs can account for a significant portion of fixed overhead for
smaller integrators. I suspect that’s one reason why Richard Glikes of
Azione Unlimited counsels his group members to consider owning their
I can’t give you tax or legal advice, but I urge you to seek it when
considering whether to rent or own your place of business and in the
process, you may want to consider the following:
1 Foreclosure auctions are on the rise, which could be your opportunity
to snag the bargain of a lifetime. While foreclosure rates may be
decreasing, lenders are eager to move previously foreclosed properties
off their books. This is driving auction activity up and keeping the prices
properties sell for discounted below market value. Check with your realtor
about commercial property auctions. You might find a deal that you can’t
|There may be strategic and tax advantages of real property ownership that help your bottom line.
2 Interest rates remain at historic lows, so lock them in while you
can. Low rates bode well for residential systems installers who can
secure financing at low rates, which in turn keeps their payments low.
Run the numbers for your business. You may find that the monthly cost
of ownership is about what you pay in rent. Check with your lender to see
what rates and terms are available and let your accountant do the math
and offer an opinion.
3 Rents are on the rise and will likely continue their upward trend.
After years of accepting reduced rents to keep tenants in place,
landlords in some areas are gaining pricing power again. Trulia reports
that, nationwide, rents were up 4.5 percent in the past year. If that trend
keeps up, you could end up paying 25 percent more for the same place
five years from now. Plus, the pendulum is swinging even higher in some
markets. Those of you in hot markets like San Francisco or Denver will
likely experience even greater increases.
If you decide that ownership is not for you, or if you don’t have the
financial muscle to buy your own place quite yet, consider renegotiating
your lease and lock in a fixed rental rate with your landlord to keep your
costs down and predictable for the next several years.
4 There may be strategic and tax advantages of real property
ownership that help your bottom line. I suggest that you consult
with a tax attorney to explore your options and suspect you will find that
there are many creative ways to leverage property ownership and make
the most of every dollar you spend on overhead.
The bottom line? Take a look at what you are paying for rent. Can you
use those same funds to own a piece of property that will likely appreciate
as your business grows? If so, make the move!