MARK MACDONALD
BRITISH COLUMBIA – “The number one rule of business is own the dirt.”
Bruce Alexander, the former owner of Parksville Chrysler and a good friend of mine, told me that more than once. With that in mind, as soon as we could, our company invested in commercial real estate – more specifically, our premises. We had to pay rent, so why not pay ourselves through a mortgage and pay ourselves, while keeping our costs predictable? It worked for Bruce… it should also work for us, right?
With Bruce’s words resonating in my mind, as soon as we possibly could, we set about to purchase our own piece of real estate, which would become home for our business.
A longtime friend was looking to buy a building for his business as well, and we reached a handshake agreement with Chris Erb of SupErb Construction to purchase one-third of a three-unit commercial property in north Nanaimo. Chris and his team put together a Vancouver Island Real Estate Board Commercial Building Award winning building we are all very proud of, which became the home for two companies.
Another friend saw what we had done and bought into our holding company. We have since purchased other commercial properties, which we expect will become solid long-term investments, which will make retirement more comfortable.
Like most initial real estate purchases, the first two years always seems to be a bit tight due to new outlays of cash and unexpected expenses, but owning brings a number of other benefits, including stability and confidence.
When we shared with others the fact we were now building owners that turned a few heads.
“Really? You just started out…” and similar comments resulted.
Being able to buy your own premises obviously demonstrates financial health, because the banks won’t allow mortgages for companies that lack the ability to pay. It was also another confidence building example for advertisers that we were, indeed, in for the long-term.
It also meant we didn’t have to move our premises any more, as changing addresses can be unsettling and expensive. We had to move out of our first business “home” because our landlord was expanding and needed more space. We found another location that suited our needs while our building was under construction, but were unceremoniously told to leave when those owners found a long-term tenant.
I received notification while I was on a business trip in China in 2006, with a blunt “you’re out” email. There was no budging on that. We had no place to go, although we worked out something to take a much smaller space for the remaining months before our building was finished. It was uncomfortable, but workable (barely).
Much like owning your own home, ownership provides an appreciable sense of certainty and stability. The property can’t be sold out from underneath you, and the only reason you would have to leave is if we decided to sell, or were forced to sell due to not being able to make the payments. And, of course, it’s a long-term statement to anyone who wants to know that the business is here and plans to stay. Demonstrations of strength and stability that produce confidence in the marketplace are good for any business.
The other thing that owning your own commercial premise does is make it easier to fund the next purchase, if there is one, because you can use the equity in the property as collateral. Financial institutions are much more likely to lend against hard assets, where they can have the property if something goes awry payment-wise.
Further purchases for us were much easier to obtain, and it was interesting to hear bankers ask if there was anything else they could do for us, i.e. did we want to buy something else.
In other words, strong hints that they knew we were good to cover any and all payments and would be more than open to do more business with us.
Investing in commercial real estate, particularly where you’re the main tenant paying the mortgage, is also a good diversification of assets. In our case, where the bulk of the value of our company is in our account lists, reputation and goodwill (otherwise known as ‘blue sky’), it’s a great way to expand net worth.
It’s hard assets, as in the “real” in real estate, which, over time, has proven to be the very best investment, wherever one is throughout the world.
And our rent only goes up when we want it to, and, lest we forget, we’re paying ourselves. Each and every month, the part of our rent that is over and above the mortgage and interest payments is our equity. Right into our own pockets.
Plus, looking down the road towards retirement, a good question to ask is what is our business really worth? Unless your company is investing in equipment (which depreciates over time) manufacturing materials, or vehicles (which aren’t appreciating assets) it goes to reason that a company’s real assets in most cases are good will and/or client lists.
All of the other “stuff” we need to put an office together depreciates, and quickly so, depending on how it’s used. So if someone is looking to have the sale of their company as a major part of their retirement plans, that might be a risky proposition.
However, if the company you’ve built owns the building you’re in, using your own monthly “rent” to pay yourselves for the future, that is a solid asset for retirement.
Commercial real estate, and specifically, your premises. There is no better investment in your post-business future.
Mark MacDonald is President of Communication Ink Media & Public Relations Ltd.: mark@communicationink.ca
