Every business needs a premises. Is it best to purchase that premises or to rent it? Good question. The answer depends on your circumstance and goals.
Advantages of Buying Commercial Property
- Ownership: the main advantage of buying property is that you own it. You can create the fit-out and design you want to perfectly suit your business.
- Sub-leasing: if the commercial property is too big, you may sub-lease or grant a licence to another person or company to use part of the property. This is a great way to generate some extra income for your business.
- Realising Asset: the property is an asset that may be sold or borrowed against to realise funds, if you need it.
Disadvantages of Buying Commercial Property
- Upfront Cost: the obvious disadvantage is the upfront cost of purchasing the property. You will also need to tie up your borrowing capacity.
- Lack of Flexibility: when purchasing your property, it is important to remember that your business will stay in that location for a significant amount of time. This could have a negative impact on your business if the majority of your customers are not located in the immediate vicinity or you quickly outgrow the property or reduce staffing levels, and the property is no longer suitable.
- Increased Liability: owning your own property is likely to come with costs that are generally not applicable to leases, such as a mortgage and maintenance costs.
Advantages of Leasing Commercial Property
- More Liquidity: leasing allows your business to quickly adapt and respond to any changes.
- Greater Flexibility: leasing gives you the flexibility to move locations to be closer to your clients and down-size or up-size with ease. You may also find it easier to find a new commercial property to rent, than one to purchase.
- Fewer Outgoings: the landlord has to maintain the building and fixtures.
Disadvantages of Leasing Commercial Property
- Investment: by leasing the property, you miss out on the long-term investment potential.
- Rent Increases: being a tenant means that you are vulnerable to rent increases each year. You may also find that the landlord will want to negotiate a rent increase when the lease is renewed. On the other hand, when you purchase a property your expenses are more or less set.
- Leasing Income: leasing the property will prohibit you from acting as a landlord and generating leasing income.
Ultimately the decision to buy or lease will depend on your circumstances and the needs of your business. Whether you chose to buy or lease, we recommend you seek legal and financial advice to ensure that you make the best decision for you and your business.