10 Strategies for Building Wealth in a Down Economy

For business owners who want to build wealth, now is a terrific time to buy discounted assets.

Owning commercial property for your business is one of the quickest and easiest courses of action there is.  Armed with the following tips, owners of small and mid-size businesses can properly invest their hard-earned dollars and secure a worry-free retirement.

Get organized.
Any competent lender should be able to give you a checklist of required documents immediately.  Full-documentation loans are worth spending the extra time on — the more thorough you are, the better you look to a lender.  You may also be able to secure a better interest rate, saving you thousands of dollars during the life of the loan.

Get pre-approved.
You’ll save yourself a lot of time and headaches by knowing what you can afford.  There is no need to waste time looking at $3 million buildings if you can only afford a $300,000 one.  Lenders have become especially efficient with issuing pre-approvals for commercial loans quickly, assuming they receive the documents they need.  Getting pre-approved early-on in the process will help everything run much more efficiently.

Know the local market.
A knowledgeable real estate professional will be able to explain comparable sales and lease rates, demographic information, plans for growth and ideas on new developments in your area.  Taking advantage of others’ expertise will help minimize your headaches throughout this process.

Consider smaller payments and longer terms.
You no longer have to put down 20 to 30 percent, or accept 15-year terms with floating rates or 5-year fixed rates that balloon, in order to get a good deal.  Utilizing such financing options as an SBA 504 loan, which provides up to 90% loan-to-cost financing with longer amortizations and below-market interest rates, will preserve more of your capital for better uses, keep your cash flow high and allow you to redeploy your capital savings into other profit-generating business activities.

Buy for the right reasons.
If your eventual exit strategy is simply to sell or close your business, it makes sense to buy rather than lease your facility.  Essentially, you’ll be “paying yourself rent” rather than helping create wealth for some absentee landlord.  By doing this instead, you’ll also build equity in an appreciable asset that offers multiple tax advantages and income-sheltering opportunities.

Consider adding equipment.
Think about adding fixtures, furniture and equipment (FF&E) into your commercial loan.  As long as the FF&E costs are a minority of the overall project costs and the items have long, useful lives, you can amortize them on the longer real estate terms.  This will improve your cash flow, while the equipment depreciates on shorter schedules that the Internal Revenue Service allows.

Consider more square footage.
Acquiring or constructing more building than you currently need will allow you to accommodate future growth.  Plus, you can create rental income to off-set your mortgage payments by subletting your excess space.

Establish an ownership entity.
It’s a good idea to establish a real estate holding company, or eligible passive concern (EPC), to own your new commercial property.  If you decide to sell your operating business later, you can maintain your real estate company — and by default, the real estate — from which you can continue cashing rent checks.  This is how owning commercial property can become a great retirement asset for owners of small and mid-size businesses.

Consider business-owner partnerships.
It may be smart to partner with another business owner in your EPC.  If you’re having trouble coming up with the down payment — and if you have a profitable business and the lender has pre-approved you for a certain amount — this solution allows you to enjoy the advantages of commercial property ownership even while you share the equity requirement and wealth creation with another business owner.

It’s important to note, however, that a new partner’s operating business will have to be examined for the lender to commit to the loan.  Always use good judgment when partnering with someone else, and make sure your operating agreement or other legal documents clearly stipulate the buy-out provisions ahead of time.  Disagreements do occasionally occur, and corporate-entity documents are usually better at resolving disputes than personal memories.

Work with a specialist.
Again, your time is precious.  You should only deal with lenders that specialize in commercial loans.  Involving a residential lender in your transaction will almost certainly slow the process and reduce your income.  It could cost you a lot in loan terms, fees and pricing.

Remember that paying a little extra money up front to work with an expert is a great strategy that will save you money, headaches and heartache in the long run.  Owning commercial property is one of the biggest decisions a business owner will ever make, and paying slightly more to work with a specialist will be money well-spent.

About the Author:
Chris Hurn is President, CEO and Cofounder of Mercantile Commercial Capital (MCC), the nation’s leading owner-occupied commercial lender.  MCC specializes in providing Smarter Financing for owners of small and mid-size businesses who want to own their commercial property.  For more information about Chris and MCC, call 1-866-622-4504 or visit www.TheSmartChoiceLoan.com.

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