Follow Us

Buying your First Commercial Property

Buying your First Commercial Property

In the initial phase, when the startup still consists of one or two people, many people rely on Home Office or the shuttercraft Co-Working Space. What still works wonderfully with a small number of employees and a few business customer appointments could, however, sometimes become complicated as the company grows. At some point, start-ups that do well will be faced with the question of their first commercial property. Find out what you should bear in mind here.

What type of property should it be?

The first question you should ask yourself is what kind of commercial property you actually need. Because you are not allowed to convert a hotel building into a shop without further ado. It is therefore helpful to know in advance what you want. Do you need a shop in a busy pedestrian zone to attract as many walk-in customers as possible to your products? Or do you work primarily in the office and for business customers and therefore need a simple office space that can also be located outside? Which answer is the right one depends on the goals of your start-up and can only be answered individually.

You should also ask yourself how large the property should be. Should every employee have their own office, would you like to plan some additional space for potential new employees or would you like it to be a little smaller? Create a small concept in advance in which you plan in the things you absolutely need, for example a meeting room or enough space for clothes rails and seating.

First commercial property – buy or rent?

If you have thought about what you want, you can look into the next question: Would you like to buy or rent your first commercial property?

The advantages of buying a property are certainly its independence. With a purchase, you also protect yourself against terminations or rent increases and, as soon as the property has been paid off, you only have to bear operating and maintenance costs. In this way you also expand your fixed assets, which gives you more planning security and financing security for the future.

With all the advantages that a purchase brings with it, you must not forget the disadvantages. Because a purchase means primarily a high planning and financing expenditure and for the time being a sometimes high indebtedness. Apart from that, banks insist on a high equity ratio of 40 percent or more when buying commercial real estate, which is not easy for start-ups without suitable sponsors to raise.

For start-ups who are in the early stages and do not yet know where the journey will take them, renting can therefore be worthwhile. Although you are highly dependent on your landlord here, you have a lower risk and benefit from a high level of location flexibility. In addition, renting means hardly any planning and financing effort, which is why renting at the beginning is probably the wiser alternative.

Plan your budget wisely

The most important step in planning the first commercial property is probably the budget. You need to know how much you can pay monthly to rent or repay the loan in order to choose the right property. Because if the rental costs for the dream property increase immeasurably, your risk that the startup goes bankrupt and you have to file for bankruptcy also increases.

You therefore have a good starting point if you have already worked in your home office or co-working space for several months and can estimate how high your monthly income will usually be. However, it is seldom possible to estimate the situation for start-ups precisely, as the income can vary from month to month. It therefore helps if you have been observing your earnings situation for a while and are always planning for a small financial cushion.

For a possible real estate purchase you should look for investors, if you cannot raise the necessary equity capital yet. You can get to know them, for example, at startup fairs or other events for startups and convince them of yourself and your company. Interested, wealthy private individuals, so-called business angels, are also happy to provide capital. Maybe you can also try crowd investing or crowdfunding.

Especially in the initial phase, many startups are uncertain about the first commercial property. Nevertheless, you should not avoid this question, because this step is usually unavoidable for a healthy company growth. But you do not have to go this way alone.

Leave a Reply