When running a small business that requires bricks and mortar, the big question is – do you buy or rent? There is no single right or wrong answer to this question, but we have summarised here the advantages and disadvantages of buying.
Advantages to Buying
Fixed Costs – Knowing your long term commercial mortgage repayments can be reassuring when budgeting (subject to any interest rate changes, fixing rates can mitigate risk).
Tax Benefits – As an owner, there are tax deductions available for costs associated with the property. Capital gains concession may be available for profits on sales of business premises.
Access to equity – You may be able to use the property as security for other business/property finance.
Additional income – In some cases, the property may be too big, allowing the opportunity of renting out a portion of it to a tenant. If your business outgrows your premises, you have the option of renting out the entire space or selling it.
Capital growth – If you have purchased your property within an area of appreciating land values, the prospect of selling for a profit is a positive one.
Control – The security and freedom gained by owning is an advantage. If any improvements are required, you can add value to your investment.
Disadvantages to Buying
Lack of flexibility – You do not know what the future may hold – for example if your business grows rapidly, your owned space may be inadequate, forcing a premature sale of the property.
Upfront costs – You will usually need a deposit even if you are borrowing funds. The initial upfront costs of purchasing a property can be high, such as appraisals, associated fees such as stamp duty (if applicable), property improvement and transfer costs.
Agility – Be aware of the risks associated with selling (especially if it becomes urgent) and the vacancy rate in your area. Make sure to do your homework, understand your risks and keep abreast of the current market.
Capital loss – Sale of the property could result in a loss if it is sold for less than the amount for which is was purchased.
Maintenance and improvements – as an owner you are solely responsible for maintaining the property and making any improvements.
If you are considering buying premises for your business, please contact your Harris Black team member to discuss further.