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Up to 50 percent of land and ranches sold in the U.S. are located in Texas. In recent years, land prices per acre in the Lone Star state have skyrocketed. In the last six years, Texas has experienced consecutive land growth sales up until this year, when small land sales showed a decline of 2.8 percent. For businesses and entrepreneurs, the consensus has always been that land is one of the best business investments to make. However, when it comes to investing in business property, there are also some downfalls to consider. From the increased flexibility and control to higher investment costs, knowing both sides of the coin can help businesses grow- or help budding entrepreneurs launch their next great business idea.
Investing In Land Ties Up Valuable Business Capital
A big drawback for businesses looking to invest in land is that it requires a sizeable capital investment. Deciding to invest the capital into land can tie up valuable liquid capital and compromise the solvency of your business. Therefore, it is highly recommended that business owners prepare a thorough business budget and cash flow forecast before committing to making a downpayment on a land purchase.
Also, keep in mind that it may take some time before the land is ready. There may be adjustments or repairs to be made or construction to take place. It will be some time before your business recoups its investment and begins to see profits from being a landowner. Finally, investing in land is a long term business move. It often entails entering into a long term mortgage contract, and may not always be easy to offload if you choose to move or pause your business operations.
Being A Commercial Landowner Presents Additional Income Opportunities For A Business
Being a commercial landowner can be a viable investment in many ways. If you find your business no longer needs the land or is closed for a particular season, there is the option of leasing your commercial space to tenants to secure additional income. With rising property prices, rental income should be enough to cover your financing costs and provide a tidy profit to your business. Hence, it is another income source for your business, and one that can prove to be very lucrative. Alternatively, investing in property in new areas presents a unique opportunity to expand your business into new markets, fueling business growth.
Business Owners Can Tap Into Tax Exemptions And Grants As Landowners
Another not so well known perk of owning land as a business owner is that you may be able to enjoy tax exemptions aimed at landowners in Texas and other states. Eligible landowners can apply for a wildlife exemption in Texas, which allows them to have their land valued at the agricultural tax rate – even if no agricultural or ranching activities are occurring on the property. For instance, the agricultural appraisal for 100 acres of open pasture land would be $83.08, according to a past appraisal guideline by the State of Texas. According to Texasland, some landowners can end up paying property taxes of $200 or less per year. For business owners, this translates to better profit margins.
Also, if businesses build on their property, they may be able to reclaim the interest on any construction loans used when they file their federal taxes for the year. This effectively reduces the cost of financing and the overall cost for your business. These exemptions are not just limited to Texas either. Most other states allow businesses to reclaim loan interest payments or write off interest paid on loans used to purchase farmland.
Benefit From More Accurate Business Cost Forecasting
Leases and land rents fluctuate according to market conditions and demand. For instance, the recent six-year land increase streak in Texas would have also seen landlords across the state increase their lease/rent prices as contracts came up for renewals. This places an increased financial burden on your business finances, and also leaves a sign of uncertainty when it comes to price stability.
However, as a landowner, your mortgage payments are fixed according to your contractor with the lender. As a business owner, this allows for better cash flow forecasting, and in turn, better business and strategic planning. So, before you make your next move, weigh the possibilities and obligations of becoming a business property owner. Is it the right fit for you, your business, and its future goals?