# Learning About Buying/Owning/Profiting on Commercial Property



## eulogy (Oct 29, 2011)

The idea of purchasing a commercial property, for leasing to a business has been floated by me. I don't really want to get into the whole market is going to crash or not argument. I just am looking for resources (websites, books) I could read to get a better idea of how to assess things.

I'll point out that I probably wouldn't do it, though I have been debating how to add a real estate component to my portfolio (was leaning toward REIT). I just want to be able to properly assess things because I'm really not too informed on it. Looking for resources that are hopefully Canadian biased, to just help and understand.

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If you must know the story. In the last 6 months I ended up quitting my boring job to get into a start up with friend who went out on his own. We are currently leasing a portion of someone else's office space and that's what we're using. But the business is doing quite well and we are getting over run, literally, with work. And we've ran out of space to add employees. The idea that we may need a new place has come up and I was 'informally' offered the chance to buy in on a piece of property for the office.

I understand what he's up to as one of our past employees did the same thing. They own the commercial piece of property (in a corporation) and the businesses in the building pay rent. And this is sort of the idea of what he's thinking.

I view this as a pre-buying in on the business itself. I expect such a thing when I get my Peng and can legally take responsibilities, but until then. 

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So this is where I'm at. I'm sort of skeptical about the idea. Mainly because I don't want know if I should be mixing these relationships into property ownership or not. One side of me tells me that don't screw around with friendships and where you work like this. The other side of me says, a bigger risk, a bigger reward. And honestly, I wouldn't fall that far financially if this imploded.

I'm just trying to get some good objective information on this. At the end of the day, my main concern is profit. I'll make the decision that shows the best profit. It's just figuring out that sort of thing.


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## Cal (Jun 17, 2009)

I am a little unclear, the property you may buy, would your start up business be the only tenant, or are there other tenants that you would have to deal with as well.

It seems it would be worth a discussion with your accountant. It may be in your financial interests to purchase the property. But your accountant would know your situation better.


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## Ihatetaxes (May 5, 2010)

I own a commercial property (within my hold co) and lease it to my operating business. Also have a commercial tenant occupying 25% of the space (separate entrances) on a 3 year lease. Decided paying over $60k/year in rent was not getting us anywhere and at least now we are building equity in a property that will be paid for in 10 years.


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## eulogy (Oct 29, 2011)

The startup business would be the only tenant. Might get a smaller second tenant. The idea is that the business would pay rent to the commercial property corp. Beyond that I don't know much. I was just looking for something to read on the subject to get an idea of the do's and don'ts. Also warning signs on whether I should be doing this or not.


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## PropertyGeek (Mar 22, 2013)

Have you done the detailed financial analysis?


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## Mall Guy (Sep 14, 2011)

. . . need to know the "whats" "wheres" "why" and always the "locations" as well as the type of space, size, market, exit strategy (if you rent, you can leave at the end of your lease, if you own ... maybe). Many small business owners have been very thankful they owned their own dirt . . . a service business doesn't have a huge value beyond the current owner, but they had the R.E. to sell! (FYI - I have been involved in mostly retail/office properties for 30 yrs . . . and have seen the good, bad and the ugly across Canada!)


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## Ihatetaxes (May 5, 2010)

Mall Guy said:


> Many small business owners have been very thankful they owned their own dirty . . . a service business doesn't have a huge value beyond the current owner, but they had the R.E. to sell!


+1


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## eulogy (Oct 29, 2011)

PropertyGeek said:


> Have you done the detailed financial analysis?


I'm not sure how I can do a detailed financial analysis on a concept. I don't know details. I don't know anything about specifics as it's just an idea. I'm just looking for information on some of the things I should know, so I can feel a little more prepared when the details become a little more vivid.



Mall Guy said:


> . . . need to know the "whats" "wheres" "why" and always the "locations" as well as the type of space, size, market, exit strategy (if you rent, you can leave at the end of your lease, if you own ... maybe). Many small business owners have been very thankful they owned their own dirty . . . a service business doesn't have a huge value beyond the current owner, but they had the R.E. to sell! (FYI - I have been involved in mostly retail/office properties for 30 yrs . . . and have seen the good, bad and the ugly across Canada!)


Dirty is the word of what is trying to be obtained because this is an engineering business providing services, so the value of the business is really the main people that generate the business, essentially in my case the boss.

I think exit strategy is the best. I don't want to end up trapped with a piece of real estate that really doesn't have any demand for it. You seem to have a better grip on how this "dirty" works. If I chip in a third, with two other people, do many "dirty" properties view that as the "value". And I mean the value being the building and a piece of the pie with appreciation of it over say 10-20 years. Or am I expected to get a cut out of the paid rent for some cash flow on the investment.

I realize these questions are more details that are hammered out with those investing, but I'm curious what you've seen people doing and what seems to be more popular (or you think is in your best interest as someone investing in this type of setup).


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## Ihatetaxes (May 5, 2010)

I think buying it with two partners is asking for trouble, especially in a new business. What happens if 18 months after closing one partner wants out to pursue some new venture? Will the company have the cash to buy out his equity?

In a new business I would suggest renting for the first 5 years and if you have a healthy growing business with strong partner relationships then go for it then. How many 3 way partnerships survive the first 5 years? I don't know of any.


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## eulogy (Oct 29, 2011)

Yeah. Over the days, thinking about it I'm starting to feel like it isn't worth my wild. There could be four of us. The more parties involved, the less I want to play.


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