Should a business rent or buy its commercial property?
Many business leaders and owners come to the question of weighing up whether to buy a commercial property for their business, or remain a tenant and keep on renting.
Sometimes we see commercial properties bought by the business entities, or the owner/director buys a property for their business to rent.
There are plenty of considerations to weigh up, and you’ll need professional advice. But here are some key pros and cons.
Owning: The benefits
Purchasing your property gives you opportunities to change and expand your space where you may otherwise be restricted by red tape when it comes to dealing with landlords.
Return on investment
The ability to make these changes, and the general growth of property values, means that as an owner you’ll reap the benefits of being both investor and business owner. And this extends to the point at which you may want to sell your property.
Affordability is important to note; many people are under the assumption that buying costs a whole lot more than renting, but this isn’t necessarily true. This will depend on the circumstances of your situation.
Financial incentives and simplification
Tax breaks are available to property owners, and the accounting and financial processes can also be simpler.
Owning: The disadvantages
To meet the requirements for a commercial property loan, or buying outright, you’ll be parting ways with significant cash. This can impact business and personal cash flow. There’s also the cost of time. If you’re going through the process yourself, you’ll be spending hours researching, handling negotiations, paperwork and much more.
Loss of flexibility
Owning a commercial property space is a commitment that takes a lot of time and energy. If you buy a property, only to find that the market for your business isn’t as great as you might have thought, it’s not as easy to just move on when the lease is up; you may find yourself locked into a difficult property situation.
Exposure to risk
Buying a commercial property always comes with some level of risk. And there’s still plenty of uncertainty in the midst of the pandemic, which will be amplified if you’re going through the process without professional support. Interest rate fluctuation is also something to consider - if you’re already running business lean, then hit with interest rate increases, you’ll find yourself under pressure quickly.
Renting: The advantages
Owning a property often has to be done in a separate capacity to owning the business that goes along with it. If you choose to rent, this separate issue is handled for you - your rent money is basically paying for the ease of convenience. The landlord takes care of maintenance and other property issues, you just get on with business.
Renting is great for growing and evolving businesses. When you don’t own the property, you can easily move to suit the changing needs of your company, and not be locked in to one building.
Low upfront cost
Being a commercial tenant has a low cost of entry. You can put a roof over your head in business for pretty much any budget, and you don’t need big savings or cash flow to do it.
Renting: The Disadvantages
Paying someone else’s mortgage
When renting, you’re living with the knowledge that you’re effectively making someone else rich. Renting is often known as ‘dead money’ - it’s a big chunk of your money each month for no long term return, compared to owning the property which makes your rent work for you in many ways.
Change of ownership
Say you settle into a building, you have a good relationship with the owner, and your business is thriving. Everything is good and well, and you have all sorts of protocols in place to make every party happy - it’s a well-oiled machine. But then a new party arrives on the scene and buys the property from the previous owner. What guarantee is there that your business will not be affected? In reality, new owners have new ideas and strategies, and tenants are often affected through a change of ownership.
With changes to the building, the turn of a new year, or the upcoming lease renewal, rent inevitably rises. While owning your property ensures that you can manage your costs and continue to gain value, leasing a property means always paying more, regardless of whether you’re getting more benefit for your rent or not.
So … rent or buy? What will you do?
There’s no black and white answer. It all depends on not only your personal needs and goals, but also that of your business.
Because Broadway Property is an independent, full service property advisory firm we have the insights you need to help make the right decision. We advise both buyers and tenants, and will help you work through the process to make the right move.
Let’s talk about your needs. Get in touch.
Managing Director, Broadway Property
Director, Broadway Property