You’ve checked off all your boxes, and now you know you need to move. The next question you need to ask yourself is whether or not you should rent or buy space for your business. There are several points you should consider in this process, to make sure you are making the decision best for your business today, tomorrow, and in the future. Paying your own mortgage is always far more beneficial than paying someone else’s, but there are several risks and benefits associated with owning property.
Is Buying Even An Option?
In some markets, buying commercial property is extremely difficult and not cost effective. If you are thinking about buying property, you want to make sure you can afford a mortgage. For starters, you should analyze your desired area and see what property costs in those locations. San Francisco and New York City might be very tough because it is a very saturated and dense area where demand for real estate is extremely high. In order to buy real estate, you will need to put down somewhat of a deposit. For all intent and purposes, let’s say its 20%. Mind you, after you buy your property, there may be other costs incurred to get the space ready for screen printing so really, you might need something like 35% on the safe side. If cash is not readily available, you might have some work cut out for you.
Location, Location, Location.
Okay, maybe you don’t have a retail space, and all you need is a warehouse, you should always consider your location for resale purposes. When renting, you can negotiate lease terms and have an exit strategy. When buying property, you have to assume the risk associated with that location. You might get lucky looking into a tax incentive district of your community early on, but if the community does not develop as planned, you may be stuck into a property that you cannot sell. When buying property, think about selling it.
Are You Ready to be a Landlord, for yourself?
When you buy property, you incur all expenditures associated with the building and the land associated with it. You will need to figure property taxes into your mortgage payments. Use a conservative mortgage calculator on a 15-year mortgage to start. Factor in insurance, water bills, and most importantly maintenance. You could spend 250K on a building, with a roof that costs 30k to replace and a parking lot that needs to be resurfaced. All these costs add up, so don’t think your mortgage is your only payment when buying property.
As a landlord, you also have the benefit of changing features of your building without jumping through too many hoops. Rental properties have limitations as to where you can build walls, plumb drains, and add electrical circuits. These are features you will definitely need to adapt for screen printing. Your dryer alone will need proper venting that might mean you have to drill through the roof. Those pieces of equipment require 220v power drops in certain places, and an electrician will definitely have to help in getting the right amount of power to different spots in your shop. These are all questions you will need to address.
Are Your Space Needs Going to Change Quickly?
Based on your business plan, you need to figure out how much space you believe you will need, and what you think you will need as you grow. If you are unsure about your space needs, your best bet is to rent for the short term. If you have a rough idea of how big you hope to grow so you can better approximate how large of a space you will need.
Roughly speaking, you need approx 3500 sq to support one automatic press (office, receiving, folding, packaging, shipping, screens etc). Embroidery can fit into a small space, but you should figure about 500 sq feet per 6 head machine.
If you know that your business will not outgrow a certain amount of equipment, search for a space that will accommodate that so that you don’t have to move multiple times. If you really don’t know, and you want to grow into something much larger than your current operation, don’t buy something just to buy something, knowing that you may be stuck with it in a few years.
Financial Benefits of Owning.
When you own your land, you are effectively building equity into another business of your own. When you buy property, you should really create a second company separate of your own printing business so you limit the liability of your land. The business then pays “rent” to the second company, which then goes to either pay the mortgage or acts as a second form of income. You can dictate the rent based (within market reason) based on how the business is doing, and flow cash into your company. You can take that as income over time, as your mortgage is paid off. Eventually, when the land is paid off, you then are running a profitable real estate company :). There are several tax incentives that a landowner may take like installing solar panels, or tax incentives on property taxes given certain city limits. The government generally wants to encourage landowners to keep investing in their property, so you can effectively fund your building and enhance it so that it has a better resale value.
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