Marrying your personal real estate investment goals with the space needs of your company can be a recipe for a failed relationship.
If you own a business, marrying your personal real estate investment goals with the space needs of your company can be a recipe for a failed relationship. Sometimes it can work out famously, but when taking all of the necessary factors into consideration in most cases the numbers just don’t add up.
Trying to buy a property that will house your business may create a conflict of interests which may cloud your judgement. This conflict can put your business and personal finances at risk.
Here’s why: Your business has a fairly specific set of parameters that require it to be located in a particular type of building. That could be retail, office, industrial or another kind of property. An important consideration is that your business has geographic requirements that can’t be put to the side. This means that for the health and success of your company it needs to be located in a particular area of the city. Based on your research this could be a main retail street, an industrial park, downtown core, suburban plaza, on a particular floor or perhaps even in a particular neighbourhood. These are just a few of the many variables in choosing a location that can affect the success of your company. Your business also has to consider its real estate costs. What can your company afford to pay in rent every month? This more than most other factors often influences location choices as some neighbourhoods are more expensive than others.
If you buy a property and put your business there, but it’s in the wrong location, well isn’t that counterintuitive? If your goal is to run the most profitable business you can, why would you sacrifice its success just to own the property? If your business could be more profitable in a better location wouldn’t it make more sense to lease space in a better location? These considerations can muddy the line of where your two interests converge, or whether they should converge at all.
Here’s something else to consider: If you buy a property that actually is in a great location that is right for your business, but the size of the space doesn’t meet the precise needs of your operation then again, isn’t that also counterintuitive? If you only had your CEO hat on, why would your business pay for more space than it needs or sacrifice on a smaller space? In the first case it would be over-paying and in second case it would not be able operate properly. Is that a smart decision for your company?
And now the numbers. If all of the ducks line up and there is a perfect property available within your price point are you going to charge your company fair market value rent? This is a fair question. Is the rent beyond what the company can afford? Can you get hire rent from a different tenant which can increase the value of the property? If you can, wouldn’t that be better from an investment point of view?
In considering a personal real estate purchase, the factors are often divergent from your company needs. Sometimes circumstances work in your favour where you can successfully kill two birds with one stone. It certainly happens, but in most cases it doesn’t and this is not a bad thing. In such instances, leasing the right space for your company so that it can be profitable and reach its full potential is in your best interest. This doesn’t prevent you from purchasing a property as an investment. If anything it just gives you the chance to make the best investment within your means. Separating your interests can help you avoid competing against yourself and help you achieve your goals much faster. Realizing this early on will help you focus your time and enable you to make smarter decisions for your company and your personal investment strategies.
Until next time,
– Mitch Gauzas –