The unincorporated CDP (Census-Designated Place) of Las Flores, in California’s Orange County is next to Rancho Santa Margarita. It is a small CDP, with a population of just 5,971 in 2010, according to the last census. The population is growing, albeit slowly. The area does not have its own zip code, using instead the one for Rancho Santa Margarita. The two are in fact so close that the dog and skate park of Rancho Santa Margarita is actually within the CDP of Las Flores.
Las Flores Commercial Buildings for Sale & Lease
As it is such a small CDP, and it is so close to Rancho Santa Margarita, it is home to just very few shops. In fact, most people travel to Rancho Santa Margarita for their necessities. That said, opportunities always exist for those who know where to look. Commercial real estate (CRE) is interesting both for property investors, who purchase properties, and for business owners, who can choose to either purchase or lease their buildings.
If you fall in this latter category, you will need to decide which option is best in Las Flores commercial buildings for sale & lease. This is a complicated decision that requires extensive knowledge of your future plans and your finances. This is why you should start by getting a lawyer and an accountant on board to help you make a decision. Unfortunately, the complexities of both options means that you cannot simply put the monthly price of your mortgage and the monthly price of your lease side by side and pick what is more affordable. Some of the issues that make the prices fluctuate are:
- The fact that you need a 30% down payment for a mortgage, compared to one or two months lease as a security deposit
- The fact that a purchased building is also an investment that could have a significant return further down the line
- The associated costs with both options, including insurance, maintenance, and renovation costs
- The tax advantages of both constructions
Generally speaking, financial experts agree that if you intend to stay in the same building for a period of seven years or more, you should consider purchasing. However, the fact that you have to be able to raise a 30% down payment means that a purchase is often out of people’s reach. That said, you should give it serious consideration, not in the least because of the investment potential.
Las Flores Commercial Property for Sale
One place to start with comparing your options, whether you want to run a business or make an investment, is with trends in Las Flores commercial property for sale:
- Multifamily properties in Orange County usually cost around $314,841.90, which is a 0.7% rise compared to the last three months, and a year on year 10.5% increase.
- Office properties in the county usually cost around $311.66 per square foot. This is a quarterly decline of 0.2%, although it represents a 11.3% year on year rise.
- Industrial properties in the county usually cost around $222.13 per square foot, which equates to a quarterly rise of 2.7% and a year on year rise of 10.9%.
- Retail properties usually cost around $408.88 per square foot, which has remained unchanged during the last quarter. Year on year, however, this is a 14.5% rise.
Las Flores Commercial Property for Lease
Because of the fact that a lease is the only available option for most people, this is likely to be something you will be looking into if you hope to find a property to run a business out of. There are many differences between CRE leases and residential tenancy agreements. Even in finding a property, you will notice that things simply aren’t straightforward.
In order to find a property, you need a broker, as listings are usually restricted to a certain degree. And here is where you will come across the next hurdle. While the fees of the broker are generally covered by the landlord, you will quickly learn that there are two types of brokers to choose from. Both of these have their own advantages and disadvantages. Your two options are:
- Tenant brokers, who are charged with maintaining your best interests at all times. However, they will request you to sign a representation agreement, which means that you are limited to the properties you can take into consideration, as they must be on the books of your broker.
- Leasing agents, who are charged with maintaining the best interests of the landlord. The advantage is that you can work with as many as you want, so that you can see as many properties as you like as well.
Once you have your broker and you have been able to visit the properties and you feel that you found the Las Flores commercial property for lease that you like, the next hurdle appears. This is the one where you will need your landlord and accountant more than ever, as well as your broker if you went with the tenant broker. Landlords will, in the first place, present you with a lease contract proposal that is heavily skewed in their favor. They hope that you expect these contracts to be similar to tenancy agreements, meaning that you can’t negotiate on them. In reality, however, every single element of the contract can be negotiated and you must make sure that it becomes more favorable for you. Just some of the key things you can negotiate on include:
- The length and extent of your personal guarantee
- How much you have to pay each month for the lease itself, and what that is based on
- The type of lease construction that is most beneficial to you (percentage lease, net lease, triple net lease, or gross lease)
- The duration of your lease and what happens when it comes to an end
- The possible rent increases, what they are linked to, and how much is the maximum
- Where the responsibility for maintenance will lie
- To what extent you are able to change the inside of the building and who will carry those renovation costs.
- Whether you can signpost your store on the outside of the building
- Whether you can sublease the space and, if so, under what conditions
- What types of exit clauses are in place should you want to leave early
- Your right to transfer your lease if you were to sell your business to a third party
- Specific clauses such as exclusive use or co-tenancy
- The security deposit amount
How About Purchasing the Property?
These are, as you can see, some very complex issues. They are also all issues that you can avoid if you were to purchase the property instead. However, buying CRE is not without its own difficulties. Naturally, you are restricted to a certain degree by local ordinances and building codes when it comes to changing the property, which is also the case with a lease. A greater issue for many, however, is that of zoning. Zoning means that only certain types of businesses can run in certain locations. If you were to lease and work with a broker, you would not be shown properties that are in locations that haven’t been zoned for you. While you can apply for re-zoning, you are responsible for the high costs of this, and it is rarely successful.
The greatest issue of all is that of the 30% down payment, money that most businesses simply do not have. If they do have it, it is capital that is earmarked for business growth, and not for investment. However, that word, “investment”, is a key factor to consider. Buying CRE is a solid investment, and one that has the potential for very high returns. In fact, should your business contract, or even if you were to go out of business altogether, you would still have the property that you can sublease or lease to continue to meet your financial obligations. Do remember, however, that if you were to do this, then you would have to deal with all the complexities of leasing again, only from the other side of the coin.
But purchasing CRE is interesting not only for business owners, but also very much so for property investors. Investors are more likely to have the capital for the 30% down payment, and they are likely to have experience in being a landlord. Furthermore, they have another option available to them, which is investing in a commercial real estate investment trust (REIT). REITs pool together money of different investors so that property can be purchased. These properties are then sold when market conditions are more favorable, thereby raising a profit. The downside of the commercial REIT is that you never truly own a property yourself, which means you also cannot use it to run your own business out of. On the other hand, it also means that you do not have the responsibilities of being a landlord, finding tenants, developing lease contracts, and so on. It is certainly a potential consideration, therefore.