For small businesses, owning a building can provide stability in uncertain times
For small businesses, owning a building can provide stability in uncertain times
One dominant theme in this economy over the last few years is that even though economic growth is pretty robust, thanks in large part to strong consumer spending and a strong labor market, things can still feel a little off.
Talk to small business owners, and they’re likely to blame some familiar pandemic hangover symptoms: high prices, elevated interest rates, elevated profit margins and a lack of certainty about where the economy is headed.
That said, some small business owners have a few advantages that can help them mitigate that uncertainty. One of them? Owning their own physical locations.
Jason Nagers’ first restaurant opened in a rented space in southern Maryland back in 2007. In 2015, when he decided to open a new place, he had a different plan in mind.
“The intent all along was to just prove the concept and know that we were going to get in and be successful, and one day, purchase the building,” Nagers said.
His restaurant, Brick Wood Fired Bistro, focuses on modern American food, craft beer, bourbon and Neapolitan-style pizza. After a couple years of leasing its space, Nagers purchased the building.
Nagers said he was excited to start building up equity instead of paying a landlord. He also felt more emboldened to invest in upgrades.
“We did a full kitchen overhaul, we’ve done significant upgrades to our bar area,” Nagers said. “We put in a different entry-exit for our carryout.”
Nagers said those upgrades were crucial early in the pandemic, especially since carryout became a big part of the business. And when he opened a third restaurant a couple years ago, he bought the building before opening its doors.
“Owning it from Day 1 gave us the confidence to perform the necessary upgrades and do the build-out that we wanted,” Nagers said.
Not every business can afford hundreds of thousands, if not millions of dollars to buy a building. But Lorilyn Wilson, owner of Lookahead Advisory, an accounting and wealth management company, said if business owners can make it work, they should.
“Every time a client’s coming to me and been like, ‘Hey, I’m looking at buying a building to host my business in,’ the first thing I say is, ‘OK, let’s run these numbers, let’s run this cash flow and see how we can make that happen.’”
Wilson said businesses get more tax advantages from owning property than even homeowners do.
“You’re going to be able to deduct the carrying cost of your property, such as your property taxes, your mortgage interest, utilities you incur,” Wilson said.
Plus, Wilson said property can be valuable.
“If you ever want to sell your business down the road, just because you’re selling your business, which is an asset, doesn’t mean you necessarily have to sell your building, which is an asset too,” Wilson said.
But one of the biggest advantages that comes with owning a space, especially right now, is that it can help a business owner avoid any surprises that can come at the end of a lease, said Nathan Rogge, CEO of First Pacific Bank in Southern California.
“You know, you’re a construction company and you lease an office-slash-warehouse space that has a yard for your trucks, and your lease comes up in three years,” Rogge said. “Whatever the market is is really going to kind of dictate what your new expenses are going to be. You’re kind of beholden to what’s going on at that time, when your lease comes up.”
And commercial rents for retail space, industrial space and even office buildings have been rising, according to the real estate data company CoStar.
Rogge said that means when a lease is up for renewal, business owners might have to make some tough decisions.
“Using my contractor as an example, [they] may have to drive farther, look into other markets, because they can’t get the space for the price they want,” Rogge said.
That kind of uncertainty helped to push LuSundra Everett to buy a new office building for the company she owns in Chesterfield, Virginia, called Everett Tax Solutions.
“I’m not going to have to worry about somebody either selling the property or raising the rent,” Everett said. “I get to decide those things.”
Everett said as a property owner, she knows her monthly payments will be stable for the long run. She said that’s a big deal, given how volatile her other expenses have been.
“Whether it is your general liability insurance, the cost of what you’re paying your employees, the software that you use to facilitate paying the employees, so you have to try to control those costs where you can,” Everett said.
Everett said she’s hoping to hold on to the property for as long as she can so that one day, her kids can decide what to do with it.
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