Buying business property
Advantages and disadvantages of buying business property
Most small and new businesses will not have the capital to buy property and renting commercial property may be a better option. However, if you do have the capital, buying your own commercial property can offer a number of advantages.
Advantages of buying business property
The pros of purchasing business premises includes:
- Giving you peace of mind knowing that you do not have to worry about lease renewals or potentially substantial rental increases.
- Financing commercial property eventually becomes less expensive in the long-term as you pay off your commercial mortgage.
- Having a commercial mortgage you may have the option of refinancing the property to free additional capital for business investment.
- Giving you the freedom to use and alter the property as you wish to meet the ongoing demands of your business.
- As the property owner you have more flexibility over the management or repair of the building
- You could potentially profit from the property when you sell it, if it gains in value.
- You have the option of subletting part of the property to another business or letting the entire property in the future. This can open up another income stream for your business.
- Relocate when the need arises by putting the property up for sale - you won't be tied to a fixed-term contract like you could with rented property.
- More accurately forecast your costs. This is particularly true if you have a fixed-rate mortgage in place.
Disadvantages of buying business property
However, there can also be disadvantages of buying business premises, these include:
- Ties up a lot of your capital, which could instead be used to set up and invest in your business. It may be difficult to recoup the capital quickly, or at all, if you decide to give up the business when there is a downturn in the property market.
- It isn't as easy to relocate as opposed to if you were renting commercial property - it may take more time and cost you money to sell your property, especially if the property value has depreciated.
- Leave you with negative equity or the threat of repossession if you cannot keep up with mortgage repayments on the property.
- Cost you a lot of time if you need to make alterations or do some building work.
- Make you responsible for the safety of the building. For example, you need to keep up to date with and implement regulations for fire precautions and health and safety. Bear in mind that some leases also require this. See fire safety responsibility.
- Commit you to ongoing costs - see costs of buying business property.
- It can be a burden managing tenants and any associated building risks if you decide to let or sub-let the building.
- You may be less agile to react to changes in the markets. For example, the global coronavirus pandemic has led to staff from businesses across the world working from home. This has given rise to a mind shift in how and where employers see their employees doing their work. You may end up with a large commercial property that is no longer required at least not in the same capacity as before.