Should I Purchase A Live/ Work Unit?

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bkshopr_IHB

bkshopr_IHB

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My office is currently in a 1920 building. It is quite artsy with many artists nearby and restaurants below. There are 4 of us and we have outgrown this rented space. We plan on growing to an office of 10. We have been dealing with unresponsive landlord to many of our issues such as ineffective air conditioning system and roof leaks. Parking is a big issue where we all have to park in a fee structure a block away. The pounding noise from the bar below often disturbs the tranquility we need for doing our work.





We have been looking at a live/work project City Place across the street from the Main Place Shopping Center. The project shares the same site with the commercial/ retails/ service. McCormick and Schmitt, Mother's Market, Fedex /Kinkos, Coffee Been and Tea Leaves, and Ashton Kusher's Geisha House Restaurant. The unit I am considering has 3 levels. Alley loaded 2 car garage and a conference room on the ground floor. The second floor is the Living, dining, kitchen and powder room which I can easily convert to work stations while the 3rd floor loft overlooking the middle space below could be 2 work stations for my partner and me. There are plenty of retail parking for staff and client where we currently struggle greatly. Freeway access is a snap to the 22 fwy entrance.





We currently have outgrown our space but to acquire the adjacent space requires cutting an door opening to an historic building. The landlord wanted us to commit to a minimum of a 2 year lease at about $2,500 per month.

The 1,825 sf live/work is about $700,000. My partner and I will invest equally toward the 20% down payment. I am a little worry because our future expense would be higher than now. We will have to pay for property tax, utility, HOA and No Mello Roos. Does it make sense to convert our rent toward a mortgage? We both are homeowners. Are there benefit for tax write-off and how should we set up our entity?





I am also shocked to see that most of the better units are all sold contrary to the slow housing market we see in Irvine. I have a feeing that the project being so close to St Joseph and CHOC hospital doctors and other affiliated support services are relocating their operation to the live/work units. The project has excellent exposure on to Main Street.

I may know a lot about design and technical issue but the tax and finance implication and benefit I do not have a clue.





Here is a link to the project:

<a href="http://www.livecityplace.com/">www.livecityplace.com</a>

We are interested in the Loft L4.

Thanks in advance.
 
<p>bkshopr,</p>

<p>If I were you I would speak to your accountant first. Hopefully awgee sees this so he can chime in. All I know is I have a home office and I really use it as I am now for "work" and I get a nice write off for it. Since you would be using the whole space for business I would imagine the write off would be significant. But I don't know if you can use the entire residential as business and take the whole write off. Like I said you would have to talk to an accountant but I think if you are expanding it could be worth it.</p>

<p>I have to check out city place because I can't understand the $700k price for Santa Ana. I did check out the Santiago lofts and they are having trouble selling them at $500k. But the location is not as nice as city place.</p>
 
<p>bkshopr and grphrix - If you use the space for business, the expenses associated with the business use are deductible. If you use the whole space for business, all the expense, except for principal payment is deductible in one manner or another, and the depreciation is deductible.</p>

<p>If you use the whole space for business, the deductibility is not in question and tax issues are relatively simple. If you use part of the space as a residence, the tax issues become a bit more complicated and fuzzy.</p>

<p>bkshopr - I have a bit of a headache right now, so later I will reread your post and see if I answered your questions. Feel free to ask me any tax questions.</p>
 
Is there a compelling reason you would want to buy an office for your company rather than rent? You would want to do a cost of capital calc, but I would think renting would have a higher NPV except for very long scenarios. But you could do a scenario where you would sell the place after some years and see which NPV is greater. As for taxes, I would think that depends on what company structure you are under.
 
<p>BK - I would suggest getting a copy of the CC&Rs and reviewing them. There may be restrictions on the number of people who can be in the unit or restrictions on use of the living space and parking.</p>
 
I know that over at City Walk (also a live-work product in Aliso Viejo by Shea Homes) you have to use the top two floors for living and can not convert any part of the top two floors for business.
 
<p>I will not be living in the unit at all. Many others homeowners will be using them as retail on the ground level and gallery on the second and third level. Would this be a wise investment to secure a place long term for my business since I am throwing away my rent each month? I will check into CC&R regarding the allowable upper level usage. Most occupancy load is 200sf per person. This space should allow 9 to 10 people. </p>

<p>I could furnish some part of it as a bedroom and I do work extremely late at my "second Home". The staff (guests) are really coming to my "home" to party everyday. I really do not know how the HOA could enforce the rule when the units are mixed in with busy retail sharing the same retail parking lot.</p>

<p>I am interested in this location than the Santiago Loft location due to the high commercial traffic and the HOA would be more receptive to encourage active business. Most of the Live/Work project I have seen so far like Front Street in Ladera, City Walk in Aliso Viejo, Santiago in Santa Ana, and Main Street Loft in Santa Ana have limited success with their business. The lower level often became a glorified foyer in the quiet residential neighboehoods. </p>

<p>I do not think I can take advantage of the tax since this will be my investment property. I do not intend to flip it. I hate flippers.</p>

<p>Thank you for the inputs.</p>
 
<p>I remember vaguely a year ago. The starting price was in the high 600k. Currently, they start at 500k. But only 3 units left in the 500k located at the Courtyard enclave.</p>
 
<p>bk, </p>

<p>As you are very well inform. Are you aware of how the construction for The City Place live/work units? I drive by the City Place quite often and it appeared that the higher end units had steel or some type of metal framing rather than wood frames?</p>
 
<p>"Would this be a wise investment to secure a place long term for my business since I am throwing away my rent each month?"</p>

<p>BK, I would say no, it is not a wise investment. As a business that is presumed to grow, you will likely grow out of that place in the near future. Unless, of course, your business has no intention of growing, in which case, why would you be in business? Second, a building is an asset, not a revenue generator. You would never count on "building equity" on the structure as part of the income of your business, so it would be construed as a bad use of capital funds. The assumption is that there would be better use for the $140K in down payment your business would be spending, something that would contribute to revenue generation. So the $3500 in mortgage or $2500 in rent merely means extra $1000 in expense, plus the down payment that could have gone to a more prudent capital spending for the business. </p>

<p>This is in addition to right now being a bad time to buy. My 2 cents.</p>
 
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