What Stats Should You Consider When Buying Property for Your Business?
These are some of the most important numbers you’ll need to consider when buying real estate.
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When investing in property to expand or start your business, you need to make the most logical, mathematical decision possible; it's the best way to ensure a return on your investment. For a home, consumers often weigh subjective factors, like personal taste, more heavily, but since bottom-line profit and long-term functionality are your highest priorities, you'll need to take a hard look at the statistics and make a colder, more objective choice.
But what statistics are most important for buying business properties?
Important Statistics to Consider
These are some of the most important numbers you'll need to consider when buying real estate:
1. Median and average prices.
First, you'll want to look at the median and average prices in the area. The median price is the price at which half the properties in the area are more expensive, and half are less expensive; it's a good indication of the middle-of-the-road choice in a given neighborhood, and can help you find out how appropriately priced a property is for your intentions.
Similarly, the average price is the sum of all prices divided by the number of properties in an area; the average and median price for an area might be very similar or might be very different, depending on the price disparities between properties.
2. Square footage.
You'll also need to think about the square footage of your target property, and the cost per square foot. Most real estate websites offer "price per square foot" as a general metric on each listed property, but it's easy to calculate yourself as well.
This tells you the relative value of your property, based on its size. This is especially important if you're investing in more space than you need, anticipating future growth.
3. Potential rent.
If you're considering subletting the property to another business, or if you're specifically buying an office building with the intention to rent it out, you'll also want to calculate the potential rent. If the building has had business tenants before, you can use historical prices as a baseline. If not, you can look at prices in similar places in the area and change your projections accordingly.
4. Crime rates.
Look at crime rates in the neighborhood. Obviously, lower crime rates are better for the employees you'll have working in the area, the safety of your business, and for the eventual value of the property. Look at growth or recession trends as well as its current position.
5. Employment potential.
You'll also want to look at the number of available jobs and open businesses in each area. Higher job availability means you'll have a wider range of candidates to choose from when it's time to hire; it also means your property value will be higher as well. If it's an area with high projected growth in employment, such as one with many new incoming businesses, it's likely your property's value will increase even further.
Don't jump into a property without understanding the property taxes you'll owe; in many cases, property taxes will amount to as much as your overall loan payments. This can make or break your budget, so don't neglect it in your calculations.
Consider your insurance rates as well, especially if your business will have members of the general public coming in and out on a regular basis. You'll likely need to invest in multiple types of insurance, including basic property protection as well as specific asset protection and general liability insurance, in case someone is injured on your property.
8. Overall real estate growth.
Finally, zoom out and take a snapshot of current real estate trends, both in your local area and nationwide. The peak in a period of high growth may be a bad time to buy; it means you're paying top-dollar for a property that may soon wane in value (though there are always exceptions). Conversely, a low price point in an area with high potential for growth represents a near-perfect opportunity to buy.
A Hint of Intuition
Even with all the numbers in place, it's possible that your sound decision may end up less than favorable, or that your poor decision may turn out profitable as a fluke. That's why, even in business- and investment-focused decisions, you'll want to use a bit of intuition to guide your final call.
Better yet, work with a real estate agent, whose intuition will be more developed, from years of buying and selling experience. Look for a candidate with experience helping entrepreneurs find the right buildings for their endeavors.