Owning owner-occupied commercial real estate is a time-tested wealth building strategy for business owners. At ThinkSBA, we have guided hundreds of business owners through the process of purchasing owner-occupied real estate and are excited to share insights, tips, and valuable information to guide you on this journey.
Understanding Owner-Occupied Real Estate
Owner-Occupied Real Estate refers to properties that are purchased by businesses for their own use, rather than for investment purposes. This type of real estate can take various forms, from office spaces and warehouses to unique properties like gas stations, c-stores, car washes and residential care facilitie.. The key distinction lies in the fact that the business occupying the space is also the owner.
Types of Owner-Occupied Real Estate:
- Multi-Purpose Properties: Versatile spaces that cater to various business needs.
- Office: Modern workspaces for enhanced productivity and collaboration.
- Industrial / Light Industrial: Versatile spaces for manufacturing, warehousing, and distribution.
- Flex: Adaptable areas for various business activities, ensuring flexibility.
- Retail Establishments: Stores and outlets tailored for specific products.
- Medical Facilities: Hospitals, clinics, and specialized healthcare centers.
- Single-Purpose Properties: Tailored spaces designed for specific business operations.
- Gas Stations: Lucrative fueling stations for investment opportunities.
- CStores: Convenient stores catering to on-the-go lifestyles.
- Carwashes: Efficient spaces for professional vehicle cleaning.
- Residential Care Facilities: Specialized spaces for long-term care.
- RV Parks: Tailored areas for recreational vehicles, creating a home away from home.
- Educational Institutions: Schools, colleges, and training centers.
Multi-Benefits of Owning Owner-Occupied Real Estate: Building Wealth and StabilityPurpose Properties
Owning commercial real estate can be a game-changer for businesses. The benefits extend beyond the operational space it provides, including:
- Equity Building: With each mortgage payment, you are not just covering expenses but also building equity in a tangible asset.
- Stability: Owning your business space ensures stability, eliminating concerns about lease renewals or changes in rental terms.
- Tax Advantages: Enjoy tax benefits such as depreciation, mortgage interest deductions, and potential tax credits for certain improvements.
Call An SBA Loan Pro Today!
Don’t know whether you qualify for an SBA 7(a) or SBA 504 Loan to purchase real estate?
No problem, you’re one click away from scheduling a call with an SBA Loan Pro.
Schedule a call today!
Risks of Owning Owner-Occupied Real Estate: Navigating Challenges with Confidence
Embarking on owning your office space is empowering, but it demands strategic planning. While the advantages are clear, consider these potential challenges:
- Down Payment Consideration: Initial ownership often demands a substantial down payment. An SBA 504 loan can help save working capital and facilitate building acquisition.
- Liquidity Challenges: Like residential properties, commercial real estate can become illiquid in a down market. Thorough research before obtaining a mortgage ensures the space meets your needs and maintains market appeal.
- Variable Rate Risks: Variable rate mortgages can expose businesses to unplanned costs from rising interest rates. While tempting in a declining rate environment, consider fixed-rate options for stability.
- Maintenance Responsibilities: Owning a property means shouldering routine maintenance costs. Though it impacts profits, proactive upkeep safeguards your investment and ensures a conducive business environment.
In essence, owning commercial real estate is commendable but demands careful consideration. At ThinkSBA, we empower business owners to make informed decisions on their path to success.
Possible Exit Strategies for Owner-Occupied Real Estate: Planning for the Future
Understanding the possible exit strategies is crucial for owners. Whether you’re looking to retire, relocate, or explore new business ventures, having a well-thought-out exit plan is key. Potential strategies include selling the property, leasing it to another business, or even refinancing to unlock additional capital. We are excited to provide our link to an in depth interview with Glenn Arnold who shares his 36 years of experience assisting business owners buying, selling and exiting.
Financing Options for Owner-Occupied Real Estate: Making Your Vision a Reality
Securing financing stands as a pivotal milestone in the acquisition of Owner-Occupied Real Estate. At ThinkSBA, we provide a comprehensive array of financing solutions, with a particular emphasis on Small Business Administration (SBA) loans customized to suit the distinctive requirements of owner-occupied properties. Our dedicated team is committed to navigating you through the intricacies of the financing process, guaranteeing that you gain access to the necessary funds to transform your real estate aspirations into tangible reality.
Explore our diverse financing options, including:
- SBA 7(a) Loan
- SBA 504 Loan
- Conventional Loan
SBA 7(a)
PROS
- One loan
- Low fixed interest rate (low risk borrowers)
- 0%-15% equity injection
- Liberal qualification standards
- Three year prepayment penalty (5%, 3%, 1%)
- Close in 60 days or less
- Use of proceeds: Real estate, furniture fixtures, equipment & goodwill
CONS
- High adjustable interest rate (high risk borrowers)
- Pledge additional real estate above 85% LTV
- Maximum paperwork
- UCC-1 on operating entity
- Up to 3.5% guarantee fee
SBA 504
PROS
- Low fixed interest rate
- 10%-15% equity injection
- Liberal qualification standards
- Fees financed into loan
- Flexible property types
- Loan amounts exceeding $10MM
- Green program
CONS
- Two loans
- Interest rate adjustable pending SBA loan closing
- Close in 60 days or more
- Maximum paperwork
- UCC-1 on operating entity
- 10 year prepayment penalty (1, .9, .8 etc)
- Complex payoff procedure
- Use of proceeds: Real estate, equipment only
CONVENTIONAL
PROS
- Competitive interest rate
- Interest rate fixed during underwriting
- Low to no origination fees
- Close in 60 days or less
- Flexible loan structures
- Short prepayment penalty
- Minimal paperwork
CONS
- Competitive interest rate
- Interest rate fixed during underwriting
- Low to no origination fees
- Close in 60 days or less
- Flexible loan structures
- Short prepayment penalty
- Minimal paperwork
SBA Procedural Notice SOP Update 2023