I have found a location I really like for a new office. It is in a plaza center with extremely high visibility and traffic anchored by Staples, Hastings, Ace Hardware, and a Dollar General. There is a Lasik Center coming in soon too.
I haven’t even started negotiations, but the leasing agent is already offering very competitive options. No lease due until I open my doors for business, they will replace flooring and drop ceiling. But one of the big benefits I see is that they are willing to take out the entire build out loan and wrap into my lease.
They say they will not charge anything other than the pure cost of the loan. Of course I will have to do my due diligence and make sure their loan will be competitive with the terms I could get on my own. Assuming that is the case though, is there any downside to doing it this way?
From where I am standing that seems like a great deal. My credit doesn’t take the ding for the loan, I have no upfront cash into the build out, and because I will be repaying it as a lease I get to deduct the entire amount when I pay rather than spread out over 39 years. Am I missing something here? Is there a downside?
Thanks
Not sure of any additional downside then the ones you’ve already mentioned. As long as the financing terms are competitive, it usually makes sense. Let’s see what George Vaill has say…
CoMingling Rent with BO $
Whatever you do, you do NOT want the landlord to include repayment of the build out IN your lease payment. Rather, that repayment should be IN ADDITION to your lease payment. Otherwise, if you commingle the rent with the build out dollars, you will continue paying those dollars back with compounded (rent) increases built on top of those dollars for as long as you are in the property.
Great point George. That is a key distinction that needs to be clarified within the agreement. Landlords and their agents will verbally make it sound one way, you get the lease and it’s spelled out another way. Intentional? Who knows, just make sure the lease is worded correctly.
This first appeared on Dentaltown.