|
Dear Small Biz Adviser
I have a couple of questions. First, we lease
the building that we are located in. I was wondering if we considered
buying the building: how would we go about remodeling it? Would
we talk to an architect or just handle it through the contractor?
Second, the owner of the building is talking like he would finance
the building himself, at around 10 percent interest. Would we be
better to finance through a bank than the owner?
Thanks,
James
Dear James:
You have two routes from which to choose, but the signature
of the architect will not be avoided. You can begin with the architect
or the contractor. It is common to contract the services of the
contractor who, in turn, contracts an architect. On the other hand,
you may want to begin with the architect who, in turn, if you want,
will contract the services of the contractor. Many people have chosen
to begin with a contractor, thinking total costs will be reduced
with the elimination of the more costly workload of an architect.
I believe you need to begin addressing
three critical issues:
- What are the present and future intended
uses of the building?
- Are you confident your contractor can adequately
address your needs?
- Are your renovation concerns strictly functional,
or will they include aesthetics?
My first suggestion is to review the American
Institute of Architects. The site is a great place to begin
appreciating the functions of an architect. It even details various
types of buildings and contract formats to consider when soliciting
an architect.
As for the contractor, are you confident with
him or her? You will find general contractor associations in just
about any area of the United States. The Associated
General Contractors of America Web site has a listing of local
associations and a search engine for contractors.
Experience has taught me the architect will
address functionality and aesthetics. Though many contractors demonstrate
an excellent ability to address functionality and aesthetics, their
primary goal is to implement, coordinate, direct and contain the
costs of the project, insuring compliance to building codes and
client specifications.
As for financing, I am happy to tell you a 10
percent rate is excellent. However, the rate is only part of any
financing deal. What is the number of years of the loan? Is there
any balloon payment? Have you calculated the amortization of the
loan? Does the cash flow in your business allow the increased cash
disbursement? If you know how much will be financed and length of
the loan go to the Bankrate.com loan calculator,
plug in the numbers and it will give you a monthly principal-and-interest
payment. You can even print out the monthly payment schedule.
Is the owner the best choice for financing?
I don't know. Where do you maintain your business accounts? Have
you spoken with that bank? Have you inquired at other banks? Real
estate is among the most lucrative of loan proposals a bank will
consider. You have leverage in the building owner's 10 percent rate
offer. Assuming the terms are straightforward -- no balloons are
included and the length of the loan doesn't burden your cash flow
-- you have a strong case when approaching a bank.
Other factors affecting your ability to get
the best rate include:
- Personal credit history.
- Company's credit rating. (Is there a Dun
& Bradstreet report of your firm?)
- Location of the building.
- Recent real estate activity in the area of
the building. (Is it in growth, in decline or stable?)
- Reason for the renovations.
- Marketability of your business.
I urge you to shop around. It may be the building
owner makes the best offer, but will you feel secure not asking
elsewhere? These matters may also affect your decision of whether
to first approach an architect or contractor.
Bankrate.com writers base their answers on our editorial
content and advice of financial professionals. We make no claims
or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content,
advice and answers are intended only to assist you with your financial
decisions. However, by its nature such information is broad in scope.
Your financial situation is unique, and our content, advice and
answers may not be appropriate for your situation. Accordingly,
we recommend that you get different opinions and seek the advice
of your accountant and other financial advisers before making any
final decisions or implementing any financial or investment strategy.
-- Posted: Feb. 18, 2000
|
