The popularity of home-based businesses is booming. Entrepreneurs love the flexibility of working from home, not to mention the tax deductions for a home office. However, home businesses get complicated when the lines between home and work are blurred. If you’re thinking of starting a home-based business, it may be wise to purchase a new home first.
What to Look for in a Dual-Purpose Home
In order to claim a home office deduction, you need a space dedicated solely to work. It doesn’t matter if it’s an entire room or a section of a room. However, if you use the space for anything but your business, you lose the ability to deduct the expenses. For that reason, it’s simplest to keep the spaces separate.
Of course, not everyone has a spare room or two where they can run a home-based business. Before you buy a new home to accommodate your business, there are a few things you need to know.
The greatest concern for owners of home businesses is zoning. Zoning restrictions may prevent you from running a home business in certain areas. This likely doesn’t affect you if you’re working remotely, don’t have employees, and don’t see clients at your home. However, if your business impacts the neighborhood due to traffic, parking, signage, or noise and odors, it’s important to ensure you’re on the right side of zoning regulations. Before purchasing, follow Discover’s advice and seek a neighborhood that permits your business. You’ll also need to apply for a Home Occupation Permit with your city, along with other business permits.
Once you’ve found a neighborhood for your home business, seek a house that meets your budget with a separate entrance leading into the space where you’ll conduct your business. In order to maintain a professional appearance, the space should have at least two rooms: one for handling business and one for storing supplies. You may need additional space depending on the nature of your business. Think of what a client would expect from a similar business run in a commercial space, and aim to meet those expectations within your home. If you complete renovations, ensure expenses are separate from residential renovations.
Keep in mind that just because a neighborhood permits home businesses doesn’t mean it’s ideal for your business. If clients will be coming to your home, the neighborhood should be convenient to major roadways as well as safe and attractive.
Financing Your Home-Based Business
You may find it difficult to get a mortgage and a business loan at the same time. The hard credit pulls involved in getting a loan can negatively impact your credit score. As Quicken Loans warns, this could lead to higher mortgage rates. Due to this risk, it may be wise to wait until after you close on your home to pursue a business loan.
When you’re ready to get a loan, make sure your business is registered with your state and has all the necessary licenses and permits. Before you can do this, you’ll need a unique and catchy business name. Your name plays a big role in public perception of your business, and choosing a name is a common sticking point for new business owners. Now is also a good time to choose your business structure; you may prefer to form an LLC for your business to gain tax advantages and lessen liability. It’s often a good idea to hire a registered agent service to handle the paperwork so you can stay focused on running your business.
Small Business Administration loans are among the best options for small business owners. SBA loans have long repayment terms and low interest rates, which is ideal when you’re just getting started. However, they can be difficult for new businesses to qualify for. You’ll need a solid business plan and a down payment of 20 to 30 percent.
If you’re unable to get an SBA loan, consider alternative lending sources like peer-to-peer lending or microloans from nonprofit lenders. Startup Grind provides information on these and other options.
Starting a business and buying a home at the same time is no easy feat. Rather than get overwhelmed, look at the upside: All of these changes mean there’s a lot of opportunity on the horizon. Take your time to make smart financial decisions and get your business set up right so you can succeed for the long run.
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