As a business owner, when should I acquire commercial real estate

Acquire commercial real estate only when four green lights flash at the same time—your business, your balance sheet, the property math, and the market cycle. Miss one and the building owns you.

---

1. Business-level green light

• Predictable cash-flow ≥ 2 yrs and DSCR ≥ 1.25 after a simulated mortgage payment.
• Occupancy cost (mortgage + taxes + CAM) ≤ 15 % of gross revenue; if rent you pay today is already lower than that, model the buy-vs-lease delta.
• 5-year growth plan is locked—square footage, loading, parking, zoning all match the forecast; otherwise you’re handcuffed to a wrong-size box.

---

2. Balance-sheet green light

• 20-25 % down-payment in cash plus 6-month operating reserve plus $25-50 k Cap-Ex cushion—banks will still require personal guarantee until loan-to-value drops below 50 %.
• Business credit file is already bankable (PAYDEX 80+, FICO SBSS 160+); this lets you refinance out of the PG in 3-4 yrs.

---

3. Property-math green light

• Cap rate ≥ 200 bps above 10-yr Treasury (today ~4.3 %, so look for ≥ 6.3 % unlevered yield).
• Value-add angle: rent below market, short-term leases, or deferred maintenance you can cure for < 1 yr of the extra NOI you’ll capture—forces appreciation you control.
• Total cost basis ≤ 90 % of appraised value on day one (purchase + immediate Cap-Ex); protects you if values flatten.

---

4. Market-cycle green light (2024-2025 snapshot)

• We are in late expansion → early hypersupply; cap rates have widened ~75 bps since 2022, debt costs are 6-7 %, creating negative leverage on stabilized deals unless you buy 20-30 % below 2021 peak comps .
• Best windows: distressed sellers, loan maturities, or assumable 3-4 % debt—lets you refi when rates drop and instantly create equity .

---

Quick decision filter

Answer “YES” to all before you sign:

1. Will the mortgage payment be ≤ the rent I pay now and ≤ 15 % of revenue?
2. Can I survive vacancy of 25 % for 12 months without touching payroll?
3. Is the all-in price ≤ 90 % of today’s appraisal and ≥ 20 % under 2021 peak?
4. Do I have 30 % of the deal cost in cash (down + reserves + Cap-Ex)?
5. Will I still grow into this space in 5-7 years?

If any answer is “no,” lease another 12-24 months and re-check; cap-rate spreads and distress inventory are expected to increase through late-2025, giving you better entry pricing once your cash pile and metrics are bullet-proof .

Rule of thumb: buy when the numbers work with today’s debt cost, not with “hope” of lower rates—rate drops should be bonus appreciation, not the plan.