The Good, The Bad and The Ugly of Commercial Property Purchase

There are many reasons why you should consider taking out a commercial mortgage to buy your own business property. Ownership is the key to wealth, but it is far from being a risk free enterprise. There are factors that every budding entrepreneur must consider or face being exposed to far too much risk. This handy step by step guide will show you what to look out for as you consider your first commercial mortgage.

Pros: There are plenty of advantages to buying your own commercial property. One of the main reasons that many companies take out a commercial mortgage is that the repayments are often the same as rental payments. Indeed it can often be cheaper to pay a commercial mortgage then your monthly rent.

Commercial lenders will often allow you to take out your loan on a fixed rate basis. This guarantees your monthly cost, giving you and your company some stability. Unlike rent payments which can rise substantially every year, a fixed rate commercial mortgage will remain the same. This could save you a considerable sum over the medium term.

Not only is the property itself an asset to your business, but you can also become a landlord yourself and rent out part of the building if it's big enough. This additional income can really help, and you can always put it towards your commercial mortgage repayments which should help with your monthly outgoings.

Secondly, owning commercial property that is too large for your needs means that you can expand your business in the future without having to relocate to new premises. When you need the additional space you can end the tenancy and use the premises to grow your own company.

Let's not forget the equity and capital growth in the property helps with the company's valuation as the property is an asset that is becoming more valuable over time. Throw in increasing property prices which will increase further value, the last major positive is that commercial mortgage interest is classed as an allowable tax expense.

The Bad Stuff: Although this is not necessarily a 'con' as such, you do need to think about the fact that you'll have to put down quite a large deposit for a commercial mortgage, usually between 25% to 50%. If you're a new business this probably won't be appropriate as you may need funds for expending the company.

Also, if you are a business that needs a great deal of flexibility, owning premises makes it less likely you will be able to relocate your business in the future. Selling a commercial property is a time consuming affair and in today's economic climate it is in no way certain that a buyer will be found, at least not to a timetable that suits you.

As for the last round of negatives: the costs don't stop with a just the mortgages, half a dozen insurance types and policies will be needed, liability, contents, building etc. Then let's not forget the maintenance costs, which have to be dealt with quickly especially if you are subletting to other companies, so you can expect to fork out for any damage or maintenance needed that happens on their part of the property.

It is vital that you carefully consider both the pros and the cons if you are considering buying business premises. Owning your own property can offer significant benefits, but it may not necessarily be the best thing for your company at this time.


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Timothy Frodsham writes for Just Commercial Mortgages the UK's No.1 site for the latest commercial mortgage rates and commercial property finance news.