7 Tips to Wealth-Creation Through Commercial Real Estate Ownership
By Christopher G. Hurn President & CEO, Mercantile Commercial Capital LLC | May 04, 2010
Maintaining a profitable and successful hotel can be difficult but rewarding. The hard work and attention to detail that are essential to creating a desirable and competitive hotel can be overwhelming, so much so that some hotel operators often disregard one of their best investment options for achieving wealth and financial success. By investing in the ownership of the commercial property, in addition to operating the hotel on which the property is housed, hoteliers can reach their ultimate financial potential and enjoy a more lavish and secure lifestyle.
Hoteliers and franchise operators that own the property find themselves in the advantageous position of building a healthy nest egg for themselves when the time comes to execute their exit strategy. It makes a great a deal of sense to "pay yourself rent" rather than a landlord if the plan is to someday sell or close the business. Once the capital for the down payment becomes available, business owners should consider turning their rental payment into a mortgage payment. This enables them to begin building equity in an appreciable asset that offers multiple tax advantages and income-sheltering opportunities.
The following tips can take some of the stress out of buying and owning commercial real estate:
Get organized. Most competent lenders can provide borrowers with a checklist of the documents that they will need in order to complete the transaction and obtain all of the necessary financing. Full documentation loans, which include SBA 504 loans, are especially appealing because they typically offer better terms and interest rates. Just a few tenths of a percent in the interest rate can add up to tens of thousands of dollars, if not more, over the life of a commercial loan. And, longer loan terms mean better healthy cash-flow for hoteliers looking to grow.
Research the current market. Most hoteliers and franchise operators don't have time to go on endless excursions shopping for the right property. They rely on knowledgeable commercial realtors to help pinpoint the right property that exactly fits the business' needs or requires only minor renovations. Plus, good realtors have comparable sales/lease rates in the area and information on its demographics as well as plans for future development.
Use low down payment and longer-term loans. These loans preserve capital that could be used to add staff or other resources to growing enterprises. Small business owners no longer have to put down 20 to 30 percent or accept 15-year amortizations with short-term rates that eventually balloon in order to get a good deal. SBA 504 loans, for example, are an ideal option for up to 90 percent loan-to-cost financing and up to 25-year terms. They are one of the keys to success for many smaller hotel operators.
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