When you've reached the stage where you're actually looking at real estate, the site selection process is nearly complete.
For most companies, they are now on more familiar turf. They are looking at acquiring an asset, something they often do in the course of their normal business dealings. Still, it's important to have a real estate professional involved. After all, this is still a significant financial investment and it pays to have a professional to help you navigate through these often murky waters.
Part of the challenge is to clearly establish the value of the property you are considering buying or leasing. It's not enough to know that, by buying property in City X as opposed to City Y, you are saving, say, 15 percent.
You still need to make sure that you are not overpaying for the property in City X, even if it is considerably less than in City Y. Sounds obvious, doesn't it? And yet, it happens all the time, both in commercial as well as residential real estate.
If your company is currently located in a relatively high cost area - for example, either of the two coasts - and you are looking at property in cities in the Southeast or Southwest, I can almost guarantee you that the prices will be less, often considerably less.
If your business needs dictate that you establish an operation in a city in either of these regions, don't accept the initial price - even if it is much lower than what you are currently spending - without knowing what the going rate is. It may turn out, and often does, that you can drive the price down even lower.
Why is this important?
Well, beyond the obvious point of never paying more for something than you absolutely have to, you also have to consider what happens when you have to dispose of the property. If you pay too much on the front end, you may well lose money on your investment when you try to sell it.
Sounds obvious? It is, and yet people do it all the time when coming into a new market. They are dazzled by the lower prices for facilities that are as good or better than what they currently have (and for which they are paying considerably more), and they jump at the first price, simply because it is reasonable.
And it is. It just may not be the best price they can get, though. If you pay $5 million in a new location for a building that is worth $10 million in your current location, you have, indeed, saved money. Yet, if the building is actually worth $4 million in the new location, you have overpaid to the extent that the property must appreciate 25 percent for it to be worth what you paid for it.
It's a common mistake, more common than you'd think. That's why it's important to involve a real estate professional who knows the new market, so you can avoid this expensive mistake.
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