I saw a commercial property location with a distressed building on it, that I believe is in a great location for a retail location. My wife (pastry chef) and I are thinking of opening a bakery and I thought this location would be great. With the building in disrepair, how would an investor approach this property knowing you were going to use it for another business venture of your own? It's not like I would be making anything from the rent!
@John Maynard you should approach this like you would any other investment property. The bank will.
You need to treat the bakery just like any other tenant. This will ensure and protect the value of the property. You can charge the bakery a premium on the lease and offset profits that way as rental income will be taxed at a lower rate and you can get creative with other tax strategies with the owning and operating the building this way.
Also if you are seriously considering. opening a bakery have you put together a thorough business plan with financial projects etc? Checked into business license and permits etc.? Is there a big enough audience for a bakery in that spot etc.
Just a few things to consider as bakery can be a great business or very tough if you do not plan properly.
@John Maynard I bought a commercial building under the name of a separate LLC and got a little reduction in the interest rate since I planned it to be owner-occupied. I rent out half to a retail tenant and my professional service business rents half, so the RE LLC receives a check each month (market rent) from my primary business just like it would in any landlord-tenant relationship. My thought is that I don't want to subsidize my business with reduced rent just because I own the building. My business needs to be a quality tenant that produces cash flow for the RE company. Sharing the building with another tenant is a huge help. I also rent out parking in the back. Maybe get creative and think about how the RE would cash flow with or without the bakery. Good luck!
Thank you for the responses. I know I left the question very generic, but that was intentional. This property isn't a tiny area and I think it could be developed into a small strip mall; but the building that is on it I think could be incredibly attractive as some sort of dining experience. I am looking for a space for my wife's ambition and my initial question would still be relevant for any property.
@Greg Dickerson answered the question well. Create your pro forma with whatever the market will bear for rent. That will tell you if you can afford to have the bakery business in there. If you lower the rent or have to subsidize the RE expenses from other personal funds, you aren't helping the bakery, the RE, or yourself. I did this with an office building and moved my accounting practice in to one of the 4 offices. I pay the highest per sq. ft. amount. The building has great cash flow and I have multiple tax planning opportunities available to me. It sounds like the better questions are related to the bakery. RE is straightforward compared to starting a bakery from the ground up. A detailed business plan, some market analysis, and starting the bakery at home would be a good start. If the bakery makes it big, it can move in to the building at a later date.
Hope this helps,
Be sure to do proper due diligence on any unoccupied commercial building. Rehab to get CO may be 10x what you budget. Get these costs prior to close.