A crucial decision that every business needs to make when approaching the topic of business premises is whether to buy or rent commercial property. An incorrect decision could have negative financial consequences. Here are some important considerations to help you make this decision for your business.
Buying commercial property
Here are some of the positives and negatives that come with buying commercial property.
Positives
Control – It is your own property. Legally speaking, you may do with it what you wish. You decide how to manage your property to best suit the needs of your business. You can change the internal layout or extend the building as the need arises. You can also sell the property if you want to.
Investment potential – There is great potential for commercial property to appreciate in value over time and lead to wealth creation. Once you have paid your loan off, you will own a fully paid for commercial property which can boost your balance sheet.
Negatives
Costs – Commercial properties are expensive. You need to pay a substantial portion upfront. These upfront costs are significantly more expensive than the upfront costs associated with renting a commercial property. There are also ongoing costs, such as maintenance costs. What is more, you as the owner have to pay for every extension and alteration to your building.
Lack of flexibility – If your business starts to take off, it is possible that you could outgrow your premises. Being locked into a mortgage makes it more difficult to move to a new location. This could limit your ability to grow your business further until you find suitable premises.
Renting commercial property
Here are some of the positives and negatives that come with renting commercial property.
Positives
Flexibility – As your business grows, you are able to respond to the growth quickly. Your money is not all tied up in the building. You can move locations or expand your commercial space much easier than if you had bought property. This can be an important factor for rapidly growing businesses.
Negatives
No investment potential – Since you don’t own the commercial property, you will not be able to take advantage of long term investment potential. You won’t be able to benefit from the price appreciation of the property because it is not your property to sell.
Rent increases – Buy a property and your costs are more or less set. Rental costs, however, are subject to greater increases over time.
Lack of control – The landlord owns the property and so is the major player in decisions pertaining to the property. These decisions can directly affect your ability to manage your business’s own affairs. As the owner of the property, the landlord makes the decision whether to sell or not.
Need help?
If you require assistance in making a decision between renting or buying commercial property, or assistance in actually buying or renting such property, please do not hesitate to contact us at [email protected].