The Things that you should Consider in Commercial Real Estate Lease

Nearly everyone in the commercial real estate lease investors seems to be in a big struggle in the small business ownership.

Beverly Hills, CA (prHWY.com) March 24, 2012 - Nearly everyone in the commercial real estate lease investors seems to be in a big struggle in the small business ownership. Whether they are going to lease or own a property consistently. The idea of owning can be very appealing, especially now as interest rates are still low, new loan programs are popping up like 90% non SBA financing and 30 year fixed programs. And, building bargains seem abundant. This question is certainly not new. Businesses have struggled with this for years - in good times and bad. The decision can become complicated quickly as objective and subjective factors combine. Forces outside of the commercial real estate lease business owner's control, such as the general economy, interest rates, and future real estate values, further unclear the issue. The most thought of advantage of ownership is the potential appreciation. However as we are seeing now, appreciation is not always guaranteed. Historically, financial experts have broken down the question by quantifying the factors such as the difference between the down payment/monthly mortgages vs. lease payments. The point is to come up with an estimate of the buyers Internal Rate of Return on the down payment injected into the purchase. Internal Rate of Return is commonly discussed, analyzed and dissected.

Many factors can be manipulated, such as the anticipated appreciation rate inflation rate etc, to come up with different projections. These types of analysis can be very useful and give a clear perspective on a complicated issue. But, for most small business owners in general and in our economy, the question really boils down to money, and long term plans. Equity is hard to "tap" in commercial real estate. Many businesses need that capital for daily operations. Secondly, what is the difference in the potential mortgage payment vs. lease payments? Long term plans. Owning can be the wrong strategy for companies with strong growth potential/ expansion plans as selling on the short term can be expensive and difficult. Also, companies seeking venture capital may want to shy away due to how real estate ownership affects their books. So, without overly simplifying the issue, the economy seems to be making purchasers think more of "now", how holding real estate affects their business immediately vs. traditional long term hold IRR type mentality. Many buyers are discovering that despite concerns over the market, ownership still makes a lot of sense for their business and personal wealth.

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Tag Words: real estate lawyer

Categories: Legal

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