The Business Owner's Guide to Wealth Acceleration

[00:00:00] What if I told you that the key to unlocking your business's full potential and securing your financial freedom is right under your feet? Today we're going to explore how owning your commercial space can be the game changer that you've been looking for.

[00:00:14] Welcome to The Brick & Mortar Money Show! The podcast dedicated to helping business owners and professionals achieve wealth, autonomy and control through commercial property ownership. Join us as we unlock the power of real estate to transform your business and investment strategies.

[00:00:33] Whether you're seeking to expand, invest or gain more freedom in your entrepreneurial journey, this is your destination for insightful stories, expert advice and actionable strategies. Welcome! Navigating the changing sea of business ownership is no easy task. You're constantly confronted with shifting markets, evolving employee dynamics and fluid

[00:00:57] organizational structures. Amid this constant flux, growth emerges at both a blessing and a challenge, often diverting hard-earned money down unseen drains. One of the recurrent matters you'll face if you have a locally based business or

[00:01:10] a business that requires a physical location is the question, do I rent or own that space? With a small, fragile, up and coming business, it's a simple answer. If you rent, your focus needs to be on building a solid, stable growing enterprise that can fuel your life's dreams.

[00:01:25] But if you've been at business for a few years and have a successful growing track record, the answer is not as easy. While continuing to rent your space can be the default option, it may not be the best choice for your overall business success.

[00:01:38] One of the most fundamental ideas you have to consider is why you went into business for the first place. For myself and many entrepreneurs, it was to achieve freedom and the wealth to enjoy it.

[00:01:48] To have the ability to calm my own shots and to spend my time in life with those people and doing the things that I wanted to do. And to achieve these goals sooner rather than later in life.

[00:01:58] But renting the space that my business operated out of did not fit into that wealth and freedom plan. A couple of ideas to consider. One, rent is a financial drain and opportunity cost. Imagine the thousands of dollars you pay in rent each month, money that could

[00:02:13] have been invested into your business's growth. Instead, it's a relentless outflow with no asset accumulation or equity. Consider Cathy Oh, a friend of mine and a client who is a successful OBGYN. She's been in business for a number of years and has a very important job

[00:02:29] bringing babies into the world. So I certainly applaud what she does. She had rented her space with her own practice for a number of years and her husband Jim had been on her case to consider buying the property.

[00:02:40] She ultimately did buy the property and some 12, 13 years ago has been paying on that property since then. Has since paid the property off the building off where her practice operates out of. And just recently she was approached by one of these larger medical

[00:02:59] managed care groups that are rapidly buying up independent practices here in the country and they offered to buy her out. And she's OK. I'm approaching retirement. That sounds like a pretty good deal. So they bought her out. She negotiated a sweetheart deal.

[00:03:14] They kept her on for a few years so she can come and go as she pleases. But the big kicker here is her practice was well established in that space, in that location. She owns the building free and clear.

[00:03:25] And so that managed care facility not only pays her to be a staff physician, bought her business, paid her for that, but is also paying her to rent the building from her that's free and clear. So she set up an amazing retirement plan just with the building itself.

[00:03:40] And she's got equity in it. She could eventually sell it if she wanted to, but she turned her rent by making the decision 12, 13 years ago into equity. That's now also a retirement stream that's very healthy. You could also consider John another client friend of ours owns an HVAC

[00:03:56] company and he was paying $6,200 a month in rent. His business was growing. We said the growing pains there and it was just bothering him so much that he was spending so much money and rent. His rent payment was significantly more than his home mortgage payment.

[00:04:10] He's, gosh, I own my home, but I'm renting my business space. And John was able to buy a new building, a facility that was larger than the one he was currently in. Part of his plan was to get a building that was large enough that

[00:04:23] he could eventually continue to grow his business into. But in the beginning didn't need all the space. So he bought a building larger than he needed to. And he has rented out a significant portion of the facility, which has deferred his mortgage payment significantly.

[00:04:36] So he's paying less on the mortgage payment with a larger space than he did before as a renter and building equity and a second business, because now he owns the real estate. Adam is another one. He's a client right now we're working with.

[00:04:51] He is currently building a steel building, a warehouse. He owns a roofing and contracting company and he's building 12,000 square foot of space. But again, his strategy is with a growing business and he's got a separate business he's spinning up.

[00:05:05] He's planned right out of shoot that he's going to occupy about 8,000 square feet, but he's renting 4,000 square feet out to other people he knows that trades people in the industry that need space. And it's a flex warehouse building and that the rent, the rental income

[00:05:20] he's getting on that or he will achieve on that when the project is done here shortly. We'll defer almost all the entire mortgage payment. So he's got a building that he owns. It's brand new. He's got some tenants that are paying the freight.

[00:05:33] He's saving money on rent because he's no longer renting and he's building equity in this building, which is in a thriving growing area that's only going to increase in value over time. So that's one of the problems of rent. How about this?

[00:05:46] Number two, the lack of control and autonomy. Consider the restrictions that you face in a lease space. You can't really renovate it or reconfigure it to suit your growing needs without having getting permission and paying for that and building someone else's equity.

[00:06:01] You're really at the mercy of your landlord and confined by terms that maybe don't favor your business's solution. They really are in the best interest of the landlord. And if that happens to align with you, then that's great.

[00:06:12] When lease renewal time comes, if there's no longer an alignment, then you may not have the opportunity to renew your lease or your lease rate might go up significantly. Or if you're like one of my clients, Osmond, the lease or the owner

[00:06:29] of the building decided to sell one of his locations. Osmond had a very successful, still does pizza business and a few other businesses. He has a couple of locations. Has built his clientele up over the last eight to 10 years.

[00:06:43] And one day out of the blue, he's renting his spaces. The landlord came to him and said, Hey, I'm going to sell the building. Now, fortunately, the landlord gave Osmond the first right of refusal to actually buy the building and we were able to help him do that.

[00:06:56] But if the new buyers had been identified and they weren't interested in having a restaurant or a pizza restaurant in that building, then what would he do? He'd invested almost $80,000 in the kitchen to customize it,

[00:07:08] to make it the way he wanted to be, to fit his workflows and his processes. His clientele was locally based. It's a pizza shop, right? There's one every few miles. And so if he were to uproot and have to find another location

[00:07:21] and then reestablish, there's a high probability he would have lost a significant amount of his clientele. So by buying the building, he was able to defensively protect his business and the cash flow in the clientele that he had built.

[00:07:33] Another great friend of ours, Steve, is a commercial builder. Steve's got a great story. He started out in Drywall and 30 years later, now he owns some 14, 15 commercial buildings. But Steve has learned a lot of lessons along the way. And one of those was he bought a competing business.

[00:07:52] It's a cabinet shop. And he not only bought the business, but he bought the building and he realized that by going into the space and modernizing the space and redeveloping it, bringing in new equipment and new processes, he actually hired someone who's pretty forward thinking

[00:08:11] in terms of how to run a manufacturing process in 2023 effectively because the original owners were running the business sort of the same mold. And they were doing well and the business was profitable, but Steve thought, hey, can we increase our productivity by reorganizing the workflow, rebuilding the building?

[00:08:32] So long story short, he did that as the owner. He was able to do that. And just six, 12 months later, they with the new equipment, new process, new thinking, same business doubled their output with the same staff. So the opportunity cost of being locked into a space

[00:08:50] and not really being able to change it effectively when you're a renter can certainly impede your growth and opportunity. Where there's Sarah, the vet, she growing veterinarian not too many years out of school had a vision on how she wanted the dog

[00:09:04] and more importantly, the dog owner experience at her veterinarian practice that she was building for the long run. She loves her animals, but she really also as a business person and wanted to create this experience, this wow experience for the owners

[00:09:19] because she knew that was the secret to long-term success and wealth creation. And Sarah decided she wanted to build from ground up, from scratch, the perfect place, the perfect building that suited her needs and she was able to do that.

[00:09:32] And that's one of the opportunities that you have when you own or consider owning versus just leasing a space that's making it fit. How about the tax challenges for a successful business? So as your business continues to grow, so does the interest of the tax man.

[00:09:47] You become the IRS's fanboy. They love you. The more income you make, the more successful your business is, the less the deductions apply to you. They phase a lot of those out as your income grows. But what if you could leverage ownership of a commercial space,

[00:10:03] not only to build wealth but also to strategically minimize your tax liabilities? There are great ways to do that with something called a 1031 exchange. Most people, when they buy a commercial space, they set up a separate company. It's a real estate company that owns the space.

[00:10:17] And then their operating company actually rents space from their real estate company, allowing them to do some interesting things with depreciation and reduce some taxable income and just do some really very legal things and practices to mitigate some of that tax liability.

[00:10:36] Great friends of mine, Robby and Mark also took advantage of that, the tax, I won't say loopholes, but the favorability of commercial real estate, particularly the 1031 exchange. These guys had started a, they got in the car wash business about 12, 13, 14 years ago

[00:10:52] and they started with one small car wash. But their vision was over time was to buy the real estate, the car washes in areas, high traffic areas that we're going to appreciate, the land was going to appreciate over time.

[00:11:06] And if the car washes could just pay the freight on the land and give them a decent salary while they're building this enterprise, over a period of time, they could amass their wealth in the equity appreciation of the land, much like McDonald's, the whole McDonald's model.

[00:11:24] Many people think McDonald's was in the hamburger business. Yes, technically that is the business that they started in and it's what they grew with the franchising model. Really, anyone in the know realizes that they're really in the real estate business.

[00:11:36] They own some of the most prime real estate in the entire nation and really throughout the world. And that was by design, that was not just by happenstance. So Robbie and Mark, so they bought these car washes and over time as their success grew,

[00:11:52] they were able to afford more expensive pieces of land in more prime locations. So what they did was they would sell their earlier assets after they've appreciated in value and they would do what's called a 1031 tax exchange and they defer the taxation on the sale

[00:12:10] and use that money as down payment into the next properties. Looking forward again, a little over a decade, they sold most of their enterprise for a very substantial amount of money. They didn't pay federal taxes, the bulk of their income, they paid money taxes on their income,

[00:12:28] but they didn't pay tax on all those gains. They didn't have to deal with that until the very end and since then even on the sale of their enterprise they were able to defer some of the gains with the 1031.

[00:12:39] So there's a lot of opportunity there that as a renter you're not enjoying or benefiting from. So moving on, so having navigated the choppy orders of renting and every rent check feels like a missed opportunity. The horizon now presents the opportunity

[00:12:57] for a more empowering and profitable path for you, owning your commercial space. It's not just a shift in financial strategy, it's a fundamental change in how you perceive and operate your business. Ownership isn't merely about escaping the rent trap, it's about seizing this opportunity to build wealth,

[00:13:15] gain unprecedented control of your destiny and really to harness the tax efficiencies that come with property ownership. It's not just a solution, it's a transformation that aligns perfectly with the entrepreneurial spirit, turning what was once a monthly expense into a valuable asset, a source of pride

[00:13:31] and a cornerstone of your financial independence. Look as someone who's been in real estate finance since 1998 my mission is to empower business owners like you. When entrepreneurs succeed we all win, our families, our employees, our communities. Ownership isn't just a transaction, it's about creating positive societal change.

[00:13:51] This message is really for the visionaries, the driven, the entrepreneurs who aren't just in business for profit but for impact. If you're content with the status quo, this might not be for you, but if you're striving for more and more wealth, freedom and impact, let's connect.

[00:14:06] Yes, I understand transitioning to ownership is a journey, it's got unique challenges and struggles but with the right strategy and mindset the path leads to empowerment and sustainable growth. Over the years I've seen many entrepreneurs like Cathio and Robbie transform their businesses through ownership.

[00:14:23] Their stories are a testament to the power of taking control of your business space. Many people say I'd love to do that, I'd love to buy a building but I heard it takes a lot of money at 20 or 30% down payment. That's probably the biggest pushback that we get

[00:14:38] and not that you don't have the 20 or 30% to put down on a commercial property but most entrepreneurs like me want to have working capital, want to have what we call dry powder cash reserves for A for opportunities, for B for challenges, just to have cash.

[00:14:56] And so I would tell you that typically to get into a business space for yourself it's 10% down and many times it's 0-5%. We've had many clients 0-5% to buy a commercial building which is in some cases less than it takes to get into your own home.

[00:15:12] So that's really not an issue. So here's the question, are you ready to consider joining the ranks of successful business owners who've taken control of their destiny? If so, I've written an easy to read and I just book on the subject that will open your eyes

[00:15:26] to the opportunity right under your feet. Head on over to ownyourbuildingnow.com and you can grab a copy for free. Just cover the shipping. Also on the website we built a 20 question self-assessment that'll help you answer the question, is buying commercial property right for me?

[00:15:43] It's quick, two minutes free and you customize results and insights immediately. I'm Paul Neal and I've enjoyed speaking to you today and I look forward to talking to you or working with you in the future. Once more head on over to ownyourbuildingnow.com

[00:15:59] and grab a free copy again just pay shipping of the book I wrote, Unleash Your Business, Unlock Wealth, Autonomy and Control by Buying Your Building and Firing Your Landlord. Thanks for tuning in to the Brick and Mortar Money Show.

[00:16:14] Keep building your future with us, subscribe for more insights and remember in real estate every step is a step towards wealth. Until next time take control of your space and your success.