Sometimes it’s so hot outside you can barely think, but this real estate example is so easy, it’s cool.

It is amazing how many business owners have recently shared conversations with me regarding owning their office space.  Each year they had a profitable business, but in many cases, over time, the biggest gain came from owning the property where their company operated.

Here’s an example; the numbers were changed for easy math, but the concept is true.

A business owner had been renting for years, paying about $5,000 per month in rent or $60,000 per year to the landlord.  He decided it was time to buy and worked with his Realtor to identify the right property.  He formed a LLC to purchase the office building for $800,000.  The LLC renovated the space to increase its value and leased the space to his business and to other businesses.  After all expenses and mortgage payments, the property generates a cash flow of $30,000 per year.  The value of the building has increased to $1.2 million.  When the 15 year loan on the property is paid off, the cash flow will be over $100,000 per year and this is extra revenue in addition to his business income.  He also would have the option to sell the building that would have appreciated to an estimated $2,000,000 by this time.  He could use the proceeds however he chooses, including doing a 1031 tax deferred exchange to buy another property.

Filed under: Benefits of Owning Property, Building Equity, Cash Flow, Commercial Real Estate