Powerful Business Strategies - Buying a Building

0:04 Hi, you have done to the censure wow for you your. This is the pipe Man here on the Adventures pipe Man W four c Y Radio and once again it's our positively pipe Man segment and we are here with our resident business expert Michael Barbarita, which is gonna give us some more powerful business strategies. So welcome to the show. Michael, thank you, thank. You, Dan. Pleasure to be here, thanks for having me so today. You know, one of the things that business owners should try to do is they should try to buy the building that they're in. It's easier said than done, there's no question about that. But there are you know, there certainly are a number of advantages. One is is that the the business will pay the rent, which will pay which will which will which will be, and will pay the mortgage as a result of that, And of course, by the way, your business should be a separate I mean, your business should be a separate entity from the building.

1:12 You should never buy a building within your business because of liability. If somebody sues you, you don't want to go after the building. So yeah, so that's always different, and so there's always you're always the landlord of a building you own as well as the tenant. You're you're both because your business is the tenant. So uh. There so with the business paying paying the mortgage, Uh, it really serves as a tremendous advantage to own a building. Not to mention the tax benefits from the depreciation and so forth, but that there are a lot of benefits to it. So uh. But here's the dilemma. Some of the commercial properties out there have gotten really out of control from a price standpoint.

1:59 But that doesn't mean you should shouldn't you should stop looking. You should continue looking because there's a couple of things that you could do. Number one, if you if you like the building that you're in, the next time that your lease renews, you should add a an option to buy and see if the landlord would go for it, and make sure that you're clear on the terms uh and the pricing. Uh. There's been there's a number of ways to skin that cat. I've had a couple of clients who I've helped negotiate a lease with an option to buy with UH. The landlord has been open to it. Uh. You know, you have to you have to give them an attractive offer sometimes and sometimes it's you know, you can get it at just regular market value, but uh, most of the times you're projecting what the market value will be most of the time. So, but but that's one way to try to get an opportunity to get into the.

2:56 Get you know, by the buy a building, uh. The other and by the way, if the building has other tenants, that's that's just as attractive. It's not that it retracts from that attractiveness. You are more of a landlord that way, because you have to make sure you fill tenants and so forth constantly or as tenants leave. But it's a very valuable owning a building, uh with a with your business is a very valuable thing. And so the other thing is if you call five banks who do SBA financing, you potentially could get five different answers on the structure of the of the financing. For example, if you negotiate seller financing, there are some banks that will allow you because the SBA will to take to.

3:46 Reduce the down payment. Now, the down payment for commercial real estate with the SBA is normally ten percent. But if you could get some significant or relatively state doesn't have to be overwhelming, but relatively significant financing, you can get a lower down payment, but it depends. Sometimes the bank won't let you even though the SBA will. The bank won't because you're dealing with two different finance companies. Unfortunately, when you're dealing with the SBA, you're dealing with the bank who has their set of rules and regulations, and then you're dealing with the SBA. So you have to get very creative and you might have to shop around when it comes to buying a building because some of the prices for commercial real estate, especially in the New England area where I am, are really outrageous at this point, and so it's very difficult for buyers to get into a situation.

4:44 But they have. But you have to be creative. You have to potentially utilize option to buy and by the way, you could do options to buy to a rate. You know, you don't have to be the tenant in a particular building. You can always do an option to buy with a particular UH seller if they're not ready to sell now. So it's just another another way to go about it. You have to get creative in this market because it's very difficult UH to get in, you know, to get a piece of real est a commercial real estate especially, So those are the things that I wanted to point out for you know, for anybody who's who's faced with that dilemma, they should be trying to definitely purchase.

5:28 But also they have to they have to understand and they probably already do that. They have to get creative, and uh, you know, there's different there's different ways to negotiate a purchase, and options is one and seller financing is another. There's a big advantage for seller financing on the seller side. Sure, they're taking the risk, but they do have a mortgage on the property, so they have security and if they believe in their price, the security is probably they got to think that security is good. But they also have tax benefits. They're able to defer taxes with a installment sale methodology. So there's there's advantages to the seller to take back paper as they call it, and take back financing. So uh and I've seen, by the way, I've seen situations where the seller takes back one hundred percent of the financing because of those tax advantages.

6:25 So it's not it's not off the wall. Certainly, there's some sellers who are just you know, staunch, and but they're but they're also limiting the number of buyers that could buy the building because it's not it's not that easy to sell commercial real estate. Although it's in great demand, it's not that easy to sell because the building has to be just right to that business. Well, and I have a question for you that proade listeners would be wondering. Okay, you know, because it's it's during the real estate market right now, the residential real estate in Florida that anybody that has any kind of financial savvy is going to tell you not to buy right now and you're better off renting. A couple of years ago, you were better off buying and you were renting, So that switches. So what if somebody is thinking, well, with commercial real estate being so out of sight right now, isn't it more cost effective to rent and more cost prohibitive and prohibitive and more liability to own and more of a risk because you could be buying it at the peak and the business loses its value which may also cause you to have to charge lower rents or any variable like that.

7:47 I agree, but that's where terms come in. Terms are everything. In other words, you know, just because you have a seller willing to finance doesn't mean you have to make payments right away. You know, they're out there a way to to uh structure a transaction so that it could be very favorable for you know. Obviously, if they don't do it, they don't do it. But but to your point, you're right, you know, because of the high cost of commercial real estate right now, it is better to rent. But that's why I talk about the lease options. Yeah, you know you're renting, but then you know you're you're in a position to buy down the road, and I would stop planting, even though they cost money, you know, some token amounts for the most part, but you know, I would stop planting seeds and and looking to potentially uh have an option to buy on these products and and put you know, put.

8:43 Down, and then by time you're ready to buy, you know it will be the right time to buy. That's right, that's. Right, because it's all cyclical, it's always cyclical, and you're right, right now it's probably a good time to rent. But I think that there's creative ways to structure deal because at the end of the day, I can't tell you how many times I've seen it. Dean where the retirement of a person was the fact that they bought the building, not the value of the business because they were one on paperhanger or you know, their business really didn't make enough money to be able to sell it up you know, three times earning, So whatever it is, it was their building that ended up being their retirement package.

9:26 Yeah, the building that happens. That makes so much sense, and like even as a perfect story of that. Many years ago in the beginning of starting this network, my daughter worked for me and we had a fan and somebody else that worked for me that also happened to be a family friend for may years, but she was in radio for may years. That's why she was working here. And so she knew my daughter since she was little. Her daughter and my daughter were like best friends when they were little. And basically she was saying to this person. My door was saying to this person, oh, yeah, like, I'm just gonna take over the business, you know, when my dad either retires or passes or something and like, and the woman said to her, like, well, because you know, my daughter wasn't acting like an owner, she was acting more like an employee. But then I'm going to take over the business, and like right now, there is no business without your dad.

10:29 So if you want to take over the business, you're gonna have to get more involved and have more of a vested interest and learn the business. You know, because I bring this up because a lot of kids think that they're just gonna take over their parents' business. I know that. So that's such the wrong thought process. Right, and perfect example is I worked for I was a manager when I was going to college. I was a manager of this pool and spa place called Harrows. They had been in business for sixty years, you know, and they were very well known. And the kids there were like multiple partners, like three or four partners. All of them retired, all their kids took over, and that business doesn't exist today, like a sixty year old business that just disappears because kids think it's like just an inheritance.

11:28 They just have to take it over and everything will run smoothly and not realize that. You know, it doesn't work that way. No, it doesn't. It doesn't, And you have to have the mindset to be able to deal with it, because if you don't, you're just gonna you're just gonna give up quick. And had it that it would be worthless to you exactly, so well as usual, you give the greatest advice. And yes, I am a believer you should buy the building because listen, real state, whether it be residential, commercial, is still one of the best investments that you know. You hold it long enough, you're probably not gonna lose money, right and.

12:10 If you do the deal right, the tenants, which you might be one, are going to pay the mortgage. Exactly. Yeah, I mean it really is. And a lot of respects and no brainer. Now there's responsibilities. You talked about repairs and maintenance and all that kind of stuff. Absolutely, but that has to be all figured into the numbers when you analyze the opportunity. So how do people talk to you and find out more about that specifically and maybe you can coach them in the proper strategies in order to upportunity. They go to NeXTSTEP CFO dot net and click on the contact page. You could also download my book for free, Call Powerful Business Strategies. They can when they get on the contact page, they could go to the message section.

13:00 They thought the form in the message section they could tie to words buying a building, I'd be glad to talk to them about it or want to buy a building, and I'd be glad to talk to him about it. Nice. Well, I definitely think they should reach out to you, because, you know, we've been doing a lot of these episodes. I think this one's been like one of the most important ones because it's it's one that most people don't think of. You know, people think of a lot of the other strategies we were talking about. They've heard of it, but I don't know many business owners that even contemplate that they should be buying the building, right. Right, Oh, that's right. They's it's something they should consider it, and especially when the e least renews they should talk to the owner of the building about an option.

13:46 Yeah, exactly. Well, love it. Love that you're here on the Positively pipe Man segment, and thanks once again for helping our listeners and thanks for being on the Adventures of Pipe Man here on W FOURC. Great to be here, Thanks for having me. Thank you for listening to the Adventures of Patement on w for c u I Radio.