If your business is expanding, you may need to relocate your offices or find additional commercial space for a new production department. You will have the option of renting or buying the property you need, and deciding what to do will depend on what is best for your business. Here are some of the advantages, as well as disadvantages, of renting and buying commercial properties:
The Advantages of Renting Commercial Properties
There are several advantages to renting the commercial space you need to expand your business, including several financial benefits. Renting a space will require less money because you only need to make a deposit and pay the first and last month’s rent on the lease. In addition, many landlords will include some rent-free months when you sign a lease with them. For instance, if you sign a year-long lease, they may not charge rent for two of those months.
Keep More Capital
Renting a space means you will have more of your working capital available to you because you don’t need to put a large down payment on the property. You can use the capital to buy the additional equipment, products or supplies that are needed for the expansion. The availability of capital will also make it easier to pay the additional operating costs for your new commercial space.
Less Responsibility
When you rent a space, you can negotiate the lease so the owner of the building is responsible for repairs and maintenance of the structure and equipment. If the HVAC system breaks down in the summer, you won’t be responsible for paying the repair bill and you can contact the landlord to arrange for the system to be fixed. Since you are not responsible for paying for repairs, you won’t have to budget for unexpected expenditures.
More Flexibility
By renting space, you will have more flexibility if you need to relocate in the future. Further business expansion or downsizing may be necessary in the future and it will be easier to relocate when you rent instead of buy commercial property. If you own the building you’re in, you would have to sell it before your business could move, but renting a space allows you to move once your lease expires.
Disadvantages to Renting
Along with the many advantages to renting the commercial space you need for your company, there are also a few disadvantages to renting a property. If you need to make structural changes to the building to better address your company’s needs, you will have to get permission from the landlord first. While they may be willing to let you update the wiring or cabling to accommodate your IT needs, they may not want walls removed or the plumbing relocated within the building.
Rent Increases
When you rent a property, there is always a chance the monthly rental amount will increase once your lease expires. If the area where the property is located becomes a popular area for businesses, they can increase your rent because they know if you relocate, they can always find other tenants who want the space. In addition, ownership of the property can change at any time and the new owners may not want to sign another lease with your company.
The Advantages of Buying Commercial Property
If you decide to buy a building to relocate your offices or to manufacture products, you may be able to take advantage of tax breaks. Tax laws are always changing, but in most cases, when you own a property you can deduct the interest you’ve paid on the loan on your taxes. In addition, local councils may provide incentives to businesses to move into their area in order to provide jobs or services the community needs.
Make Changes as Needed
If you need to make changes to the property in order to better accommodate your business, you don’t have to ask for permission to make structural changes to the building. If the HVAC unit needs to be replaced, you can go ahead and have a new one installed. Saracen discuss the merits of both renting or buying an office space so they can help you make the best decision for your company.
Steady Payment Terms
When you take out a loan on a business property, you know exactly how much your payments will be every month until the loan is paid off. While interest can fluctuate, your payments may not, depending on the type of loan on the property. However, you won’t have to put up with possible rental increases when you buy your company’s new offices.
Build Equity
Since real estate usually appreciates, you will build equity when you purchase a commercial property instead of renting it. If necessary, you can borrow against the equity if you need more money to fund a business expansion or to pay operating costs if your business is struggling. In addition, if you sell your property in the future, it will be worth more than when you purchased it.
Disadvantages to Buying Property
The main disadvantage to buying a commercial property is the amount of money you will need for the down payment. Usually, you will need to pay at least ten to fifteen percent of the building’s selling price to purchase the property. That can account for thousands of pounds taken out of your company’s working capital.
Added Maintenance Costs
When you own your company’s offices, you will be responsible for all of the routine maintenance and emergency repairs for the building. If the boiler breaks down or the wiring is outdated, then you will need to pay for these unexpected repairs. This can further erode the amount of operating capital that you have on hand.
By evaluating the advantages and disadvantages and your company’s financial situation, you can make a decision about renting or buying the commercial property you need to expand your business. For some businesses, renting is a better option than buying, but you have to consider your options carefully before deciding.
