Owning the Building You Do Business In

Owning the Building You Do Business In

The rent that you pay is what determines the value of the property to a landlord. This rent is then capitalised by a valuer at a percentage that is the yield an investor would be looking to receive from that property.

This yields ranges from 5% for a large shopping centre to 12% for smaller properties depending on their location.

Example:

Say the property that you own and from which you trade has a capitalisation value of 10%. Thus, if you pay yourself a notional $50,000 per annum in rent then the value of the property is

$50,000 (This is how property valuers and property owners would express this equation)

-----------

10%

= $ 500,000

Against such a valuation a bank may be willing to advance you 75% by way of a mortgage. You can thus borrow $75% of $500,000 or $375,000 to acquire another property or invest it in your business.

You have a valuable asset that you can underpin by entering into a lease between yourself and an entity owning the property. This you have the ability to raise extra capital if so desire.

If your business can afford it you can raise the rental and by so doing that increase the capital value of the business.

This is also a method of using the lease to improve the value of you family assets.

This is an excerpt from the Retailer's Survival Kit by Hymie Zawatzky

HYMIE ZAWATZKY