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For many owners, the idea of buying the real estate in which their company operates feels like a natural next step. If the business is strong, why not also capture the real estate? Buying your company’s real estate is not a simple decision. It ties up capital, exposes you to unexpected costs, and may box you in if your business grows faster than the space can hold.
Before you sign a purchase agreement, slow down. It’s easy to pitch ourselves on the perks of ownership, but we want to be equally aware of the potential problems before we sign the check. Here are 14 questions I encourage clients to ask when evaluating their choices.
- What is the total cost of ownership? Do we have accurate projections on factors like insurance, taxes, maintenance, and needed capital reserves?
- How does the ROI of ownership compare to leasing over 5, 10, or 15 years?
- Is the location critical to your business, or could you move without harm?
- What deferred maintenance exists? Roof, HVAC, plumbing, electrical, elevators, septic? Anything expensive.
- What capital improvements will be needed in the first five years?
- Does the building’s footprint allow for growth? Square footage, parking, zoning flexibility.
- If your business doubles, can the building adapt? Or will it become a limiting factor?
- How specialized is the property? The narrower the use (medical, data center, lab), the harder it may be to resell.
- Does owning real estate strengthen or weaken your balance sheet? In growth? In optionality?
- What is the impact on cash flow? Will monthly obligations still leave margin for reinvestment?
- How would ownership affect succession or a future sale of the business? Buyers may not want the building.
- Does ownership diversify your wealth or concentrate it further into the business?
- What is your exit strategy for the real estate itself? Hold forever? Sell to the next owner? Lease back?
- What would you regret more in five years: buying or not buying?
