There is an infamous phrase that rent money is dead money in Australia. It is the idea that Australian have grown up with since it has been pumped into their heads that they should always aspire to own a home. The same analogy has also been applied in the business arena when choosing whether to buy or lease a commercial property. However, purchasing a commercial property is not similar to buying a residential house. Here we’ll show you the differences between Buying vs Leasing a Commercial Property.
As experts in commercial property investments, we normally constantly come across clients who enquire on whether to buy a property instead of leasing. But, our response is always pegged on the stage at which the business is operating.
Before making that crucial decision for their business in this volatile economic environment, business owners ought to carefully assess the capital outlay available and the intended investment strategy.
To even ease the decision of leasing versus buying, business owners ought to keenly look at the commercial spaces across the commercial property categories. Commercial properties are usually categorized into three categories depending on their purpose, which include: industrial, retail and office.
Making a buy or lease decision for a commercial property is usually far more complex compared to purchasing a house. Planning to expand or downsize your home might be pretty easy, but challenges usually emanate when trying to select a property that best suits your business.
Pros and Cons of a buy lease decision
Carefully weighing the pros and cons can aid you as a business owner to determine whether you ought to buy or lease a commercial property that will host your business.
Purchasing a commercial property
At some point, you may need to make some renovations or substantial additions to your property. Even more specifically, you may want to change the way the business operates or your business working hours. If the property is yours, you have all the cards to manage it the way you want. You can change it internal layout or extend the space of the building. You will not be answerable in making decisions on developing your site or even renegotiating to move in or out of the property since you control your destiny and time frame. But, when you are on a rental property, you will always have to as the landlord for permission to make certain changes to the property.
Selling is Easy
Just like any other property, commercial premises potentially grow in value as the business is in operational. Getting a commercial property in a booming city can sometimes be a lucrative business. However, things can suddenly go haywire due to certain economic changes and other factors. It can prompt you to make an immediate sell if you need cash. If the property is yours, you can easily sell the commercial property to get money to run your business.
When you own a commercial property, planning for the amount you will spend in the future is a lot easier. The mortgage will offer a strong basis for making business financial decisions regarding a commercial property.
Since the money you utilize to purchase the property is not tax deductible, you will easily recover the outlay through yearly deductions.
Purchasing a commercial property can sometimes be scary than buying a residential property. Apart from commercial properties being expensive, they usually require large upfront capital.
Financing a commercial property investment is not as financing a residential property since in some instances the property owners may ask between 25-50%.
Let‘s say that business grows at a faster rate; there are chances that it will outgrow the property in just a few months. In case you have a mortgage that you are currently servicing, you may not be able to move as fast as possible depending on the condition of the business. Such a scenario will limit your business expansion till you sell the existing property and acquire a bigger one.
As the owner of the commercial property, you will want to make changes to internal layout and extension to your property to make it fit for carrying out business operations. These maintenance costs especially if the buildings are old can be burdensome. There are other annual costs and council rates that can also increase the intensity of the burden.
Leasing a commercial property
The most vital advantage of leasing a commercial property is the flexibility with which business owners can change from one property to the other. In that way, business owners can adapt more rapidly to new premises than if they had owned the property.
It also gives the investor the option to go and invest elsewhere where it is more viable since not all the money is tied up in a particular building.
For instance, if your business grows at an exponential rate and you had leased property for 3 years, you will be not be stuck in the same market if things are not right. You can change ownership quickly and relocate in another place quickly than if the ownership was in a fixed form.
Quick business decisions
When new opportunities emerge, or circumstances change, it is beneficial for businesses to respond adequately in a rapid manner. Leasing permits businesses to react rapidly depending on the existing needs. Equity and cash are not tied up, letting the business owner do things that are beneficial to the business. If you want to open up several businesses in a short span of time, it would be limiting if you are buying property, but in leasing, you can freely expand or acquire more businesses.
It increases rent
Nearly all the expenses are usually set if you are buying a property. With the increase of the CPI annually, you are almost sure that rent will increase for the leased property. At the lease renewal period, landlords may raise the cost, and you may also incur additional premiums.
Control is limited
Someone else decision will influence the ability and way you will run your business. If at one time the landlord of the commercial property decides to sell the property, you will have to relocate your business to new premises. The relocation costs may be exorbitant, and your business may lose it goodwill which may hurt its customer base.
Service someone’s mortgage
Commercial properties rent could be hundred a few dollars every month or even a hundred of thousand every year. Regardless of the cost of the property, a huge chunk of the money forked out goes to finance someone else property.
In a nutshell
A lot of commitment and effort, both financially and professionally, is usually needed whenever an individual needs to make a decision of either Buying vs Leasing a Commercial Property. It is crucial that you make the right steps at the commencement of such a decision. Hire a property specialist or an accountant to analyze your buy or lease option to determine what will best suit the business. After determining that the buy or lease decision for a commercial property, ensure that the contract has commercial property terms that favor your business. At that step, it is advisable to engage a professional who will guide you through the process. In that way, you will make a decision that will maximize your businesses potential.