Lui had some specifics in mind when he started shopping for real estate. Location was primary. He wanted to hold on to his employees, so he needed to stay close to where they live and near public transit.
He also required a reliable municipal water supply and sewage system, because his business uses a lot of water in food preparation. Ideally, the property would also have room to expand as the company’s growth continued.
He settled on a vacant lot where a developer proposed to build a facility to Lui’s rigorous specifications. He later snatched up the building next door when it came on the market, doubling his plant space, and also bought three commercial condo units across the street for storage.
Today, the company owns 5,500 square metres of space. Sales have increased 50% in the past five years, and the number of employees has grown to just over 100.
A good investment
Owning your own real estate can make good financial sense both for you and your business, says BDC Senior Account Manager Olga Plotnikova. BDC has financed Fine Choice Foods’ real estate and equipment purchases, and also provided advisory services to the company.
“Real estate is a good investment. And it gives peace of mind and security,” Plotnikova says. “You’re building equity, and you don’t have to worry about whether your lease is going to be renewed or the rent is going to be jacked up.”
But taking the real estate plunge can also be fraught with unexpected hurdles, even for experienced entrepreneurs.
Surround yourself with the right people
With so much at stake, it’s important to do proper research and preparation, Plotnikova says.
The first step should be to meet your accountant and banker to make sure your financing is in place.
Your banker will tell you how much financing you can get. An accountant can advise you on ways to optimize the tax structure of the purchase—for example, the advantages of using a holding company to acquire the real estate.
The next step should be finding a good real estate agent who knows the local market. Many commercial real estate sales aren’t listed publicly.
Take the time to do your due diligence
A good commercial real estate agent should be able to zero in on available properties that meet your needs—including location, highway access, warehouse facilities, and accessibility for clients and staff. You should also consider whether the property gives you room to grow.
Due diligence is vital once you’ve found a property you like. Make sure to ask for a recent environmental site assessment, or have one done to find out whether there are any contamination issues. It’s also useful to get a building condition assessment—the commercial equivalent of a home inspection.
Finally, expect the unexpected. Businesses often neglect to budget for things such as employee and production downtime, new signage and equipment, land transfer taxes, and legal fees. Plotnikova advises setting aside a contingency fund of 5% to 10% of the total project cost for such contingencies.
When asked for his advice to other entrepreneurs, Lui recommends good communication with bankers. “Our relationship with the bank has been critical to getting good terms for financing,” he says. “That can save you a lot of money.”
Lui also counsels entrepreneurs to move cautiously.
“No one should rush into buying,” he says. “Even a carefully planned move can lead to surprises.”
3 tips for buying real estate
1. Consult your advisors
Speak early on with your banker to figure out how much financing you can get. Also check with your accountant to make sure your balance sheet is in order and to optimize the transaction for tax purposes. Finding a good commercial real estate agent is also important. These experts can refer you to other professionals, such as lawyers, appraisers, building condition inspectors, contractors, and environmental and geotechnical engineers.
2. Consider your location
Location is, obviously, a prime real estate consideration. Issues may include accessibility for clients and employees, parking and public transit, convenience for your shipping and receiving needs, nearby services, zoning issues, and room to grow.
Apart from a building condition assessment, be sure to get an environmental assessment to check for any contamination on the property, past use of toxic products at the site or nearby, and the presence of any problematic building materials.