Every week, we advise our clients about how to handle their Frederick businesses, and particularly their finances.
It’s a big part of what we do around here, and many don’t even realize how much we’re willing and able to help. (And that’s fine, because we are plenty busy — but always willing to talk.)
We can help you with tax planning, financial advice, expense analysis, management input — it truly runs the gamut.
One of the conversations we’ve often had over the years revolves around real estate, specifically in the commercial realm. So, I thought I’d put together a little list of reasons why your Frederick business might consider whether or not to buy its own building…
Should You Buy A Building For Your Frederick Business?
“Confidence comes not from always being right, but from not fearing to be wrong.” -Peter T. Mcintyre
Here’s a quick list of 26 good reasons to buy a building for your Frederick business:
- You won’t have to move unless you really want to.
- When your clients associate you with a location, you can keep the location.
- You can install anything you think is helpful.
- You can decide what maintenance is important and when it is important.
- You can set your own temperature controls.
- You can finish the interior exactly the way you want.
- Some expenses are only justified when you know you have a long-term lease.
- You get stable rent.
- Your business can pay rent (which is a business expense).
- You can own the building in a separate LLC, providing limited liability and separate tax accounting.
- Your LLC can depreciate the building, which gives you a tax advantage to offset the rental income.
- If you hold the building until your heirs inherit it — they will get a step up in cost basis erasing the depreciation.
- Any interest payment is a deductible expense to the entity owning the building.
- You can sell the building and reinvest in property without paying capital gains through a 1031 exchange.
- Owning real estate allows you to profit in any combination of cash flow, appreciation, and reduction of debt.
- You can get a relatively long-term commercial lease at a reasonable rate.
- Office buildings are relatively inexpensive right now, making it a good time to buy.
- There are a number of empty office buildings, making it a good time to buy.
- A mortgage at today’s rates is the best hedge against inflation.
- The rental income offers a diversification to your business.
- Even if you decide to sell or move your business, you can keep the rental income.
- You are not thinking of retiring in the near future.
- You are not thinking of selling the business in the near future.
- You can carefully select any other tenants to enhance the neighborhood of your business.
- You now have an appreciating asset for a fraction of the down payment leveraging your investment.
- You have sufficient assets or cash flow to make leveraging your investments a risk you can afford.
All that said, there are certain reasons that it may NOT be in your best interests to purchase:
* You do not want to leverage your investments by adding a mortgage to the mix.
* You don’t have the cash flow or capital to purchase the building.
* You are expanding and will likely need a different building in the future.
* You need the money it would take to purchase the property for living expenses.
* You are thinking of retiring soon.
Of course, any of the tax-based strategies will depend on your particular situation, and will have to be leveraged carefully and correctly. But if anything on this list catches your eye, let’s have a strategy session together.
Email me or call: (301) 524-6335
Feel very free to forward this article to a Frederick business associate or client you know who could benefit from our assistance — or simply send them our way? While these particular articles usually relate to business strategy, as you know, we specialize in tax preparation and planning for Frederick families and business owners. And we always make room for referrals from trusted sources like you.
J Allen & Associates