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Real Estate and Mortgage Crisis Part IV: Ways Your Small Business can Profit
By Michael Taylor
If your small business generates excess cash-flow (aka profit) every year, you should know that a real estate and mortgage slump can be a great opportunity.
The basic idea is that if you generate investable cash, every time an asset (including real estate) gets cheaper, you are better off.
Warren Buffet has a much more articulate presentation than me on this idea, as he convincingly argues that most investors, if they ever intend to invest their money again, should hope for a drop in the stock market rather than a boom. The same asset, at a cheaper price, is a better deal.
The same idea applies to real estate investing: the same property, at a cheaper price, is a better deal. As much as the popular press trains us to applaud booming prices, we should welcome drops in prices even more.
I would further argue that there is hardly any small business which would not benefit by owning more real estate. Viewed as a business asset, owning your office building (or a surrounding set of office buildings, or the land adjoining your office) puts you in a powerful position. Small business owners often have a hard time convincing banks or prospective investors of the ongoing enterprise value of their business, but can almost always convince these same outsiders of real estate value.
What if you are looking to purchase an office property adjoining your business but you worry that the mortgage crisis will make funding difficult? First off, I doubt your local bank’s standards are affected by the sub-prime mortgage slump. If anything, they should be even more eager to lend to safe, profitable customers to make up for a slowdown in their mortgage-lending business.
However, the latest crisis does give you an opportunity to purchase your property without using the bank, through seller-financing. I mentioned this in a previous BizBox post, and in oother places and it involves writing a mortgage with the seller of the property. Citing the real estate and mortgage slump, you may be able to negotiate more attractive terms with the property seller than you could get from a local bank.
More attractive terms may include a more favorable down payment, interest rate, or pay structure than would otherwise be available. Your creativity in this situation can save you plenty of money or make a purchase possible that would otherwise be out of reach.
With an opportunistic approach, small businesses should be poised to not just survive, but flourish during the real estate and mortgage crisis of 2007.
Comments (0)December 5, 2007 12:22 PM
