Once you need to move your business into a commercial property it is always extremely exciting. You will probably feel like your business is proving a success and that you are taking the next steps into achieving your business goals, but you will also be unsure about whether you should be investing in a property yourself, or whether you should be looking for the perfect rental property.
It is a difficult consideration to make as there are benefits and drawbacks to either renting or buying and it really is a matter of working out which one has more benefits for your individual business.
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When you consider buying a commercial property one of the biggest benefits will be that you own it and it is yours to use however you want. If the property doesn’t suit your needs exactly you can change, extend or knock down walls until it does (subject to planning of course). By owning your own commercial property you are free to do whatever you want with it, without having to see if your landlord is happy first.
Once you have considered the benefits of owning a commercial property, the next consideration will need to be finances. Does it make financial sense for you to buy? Firstly, you will not facing rent increases as you would on a rental property and if you need to raise some money, there is always the opportunity to re-mortgage your commercial property. There are also some tax savings to be had if you own your own commercial property and when you do come to sell, hopefully you will make a profit there too.
Do Due Diligence
While this all sounds very promising, you do need to weigh up the risks of investing in a commercial property too. You and you alone are exposed to the financial risks of owing a property. The value of the property may diminish as a result of the changeable property market and you will be stuck with a commercial property which is worth less than you paid for it. Depending on what happens with interest rates, you mortgage payments may increase, which will affect your bottom line.
Ultimately, due to compound interest, a mortgage payment can end up costing you more over time than renting would. You have to work out the total amount you will repay on your mortgage, and compare it with the total amount you expect to pay on rent (assume that the average trend for the area will continue for the entire period of the mortgage). Typically, a mortgage will become cost-effective much later than renting, meaning that if you expect your business to struggle early on you should almost definitely go for rent.
Renting also gives you more flexibility. The ability to move away if the economic situation changes or the infrastructure suddenly deteriorates can not be overrated.
Should You Rent Or Buy?
This is an extremely difficult decision to have to make and you should take your time and complete extensive research before making your final decision whether to rent or buy. However, as long as you take into account the true, total cost of renting and buying, the needs of your business, your current financial situation (and any difficulties), and planning permission issues, you should be off to a good start.
For more information about this article or any aspect of our commercial property legal services, please call us on 0800 142 2775 or reply to this email and we will be delighted to help you (there is no charge for initial telephone discussions).