Owner-Occupied Real Estate: Is This The Right Option for My Company?


If you are tired of paying rent on the building that houses your business and want to avoid higher leasing costs in the future, you have a range of alternatives for investing in commercial real estate.

One popular option is securing a loan from Mercantil Bank to purchase commercial real estate where your company will be located, along with space that will be leased to other businesses. This is called an income-producing real estate loan.

Another alternative is to secure an owner-occupied loan to acquire property where your company will be the owner and sole tenant.

This step is a major decision for any company, and you should discuss the pros and cons of each option with a qualified expert – your community banker at Mercantil Bank can help.

What are the advantages and disadvantages of owner-occupied real estate?

Owner-occupied real estate typically offers you important tax advantages, including write-offs for mortgage interest, real estate taxes and expenses such as repairs.

Improvements that increase the value of your property must be capitalized and depreciated over a period of years.

Regular annual tax deductions for these improvements then can be spread out over time.

There are no real disadvantages, except that you can’t call the landlord to make repairs.

If my company decides to acquire real estate to produce income, are there advantages/disadvantages?

The rents you receive from tenants may rise or fall in the market where your real estate is located. Towards that end, there may be times when your rental income may not cover the cost of the loan. Also, depending on the type of property you purchase, expenses sometimes can be passed on to tenants.

Aside from the purchase price of the property, what other costs are usually involved in making the acquisition?

Closing costs can be high if not managed correctly. They include an appraisal, environmental reports, title insurance, deed stamps, attorney fees and, of course, a down payment.

What is the range of financing available for small and large commercial real estate loans at Mercantil Bank?

We process smaller loans and small company loan applications at our retail branches. Large loans and applications made by large companies are managed by our commercial, middle market or commercial real estate departments.

Loan repayment periods (tenor) usually range between 5 years and 20 years. Tenor depends on the principal amount and down payment.

In general terms, what will be the range of down payment required on loans for owner-occupied real estate?

Conventional loans usually require a down payment of 20-25%, depending on whether the real estate is for investment purposes or is owner occupied real estate, unless the Small Business Administration (SBA) is involved. The SBA can finance up to 90% of an approved project for owner-occupied properties only.

Would an SBA loan guarantee be useful for my company?

The SBA provides guarantee to businesses, but these guarantees apply only to loans for owner-occupied real estate.

What are the potential tax advantages for either option?

Interest is usually deductible, as are other expenses such as taxes, repairs, maintenance, etc.

Can you summarize the steps I need to take in evaluating commercial property for purchase?

Meet with a loan officer, provide financial information on your company and on the real estate under consideration, order an appraisal, environmental reports and obtain other required documentation.

What can Mercantil Bank do to help?

At Mercantil Bank, we have a group of experienced loan officers who can provide you with complete information on the process and guide you through each step. We have broad expertise in commercial real estate transactions, as well as competitive products, terms and rates.




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