To Buy Or To Rent A Commercial Property For Your Business?

If you are in business then one of the most daunting decisions you are likely to ever make will be to either rent or buy your business premises. Will the offices, the factory or the warehouse turn out to be your biggest asset or your biggest expense? Making the correct decision at the correct time could have a significant impact on the success or otherwise of your business.

Taking out a loan to buy commercial property may be preferable if you want to benefit from an increase in the value of the property over time or if you want a tight control over your property outgoings. Conversely, renting may be better for your company if you need the flexibility to move premises quickly as your business needs change. Whatever your plans, make sure you take the following pros and cons of buying and renting into account.

Buying commercial property: Buying a commercial property means that you can immediately benefit from an increase in the value of your property asset. Ownership of an office building or warehouse can add significant value to your company assets as the value of your property increases over time. You may also find that buying a commercial property makes you money on a monthly basis; often you will find that your commercial mortgage repayments are lower than the equivalent rental payments.

Renting rather than buying can also eliminate the issue of last minute maintenance costs. As a tenant, the landlord generally pays for maintenance costs, anything that needs fixing, redecorating for wear and tear and the costs of securing the building as well as buildings insurance, so you will have more money to build your company. Also you won't suffer so much if the market crashes like it did in recent times, but you should keep in mind that rent can still increase if the economy suffers.

It may also be the case that you are able to buy a property that is larger than you need allowing you to sublet the additional space. This would allow you to generate important rental income that could contribute towards your commercial mortgage.

One thing you will need to be aware of is that currently deposits sizes for a commercial property range from between 20 and at least 30 percent dependant on circumstances. So your business will require plenty of capital. One other downside could be that once the property is owned, your business will lose a certain amount of flexibility in terms of moving or expanding.

You can also fix your mortgage repayments so that you know exactly how much you will pay for a specified period, i.e. 5 years. This is something that renting does not allow as rent can be increased at any time often with just a month or two's warning. Mortgage repayments on commercial property can also be included for tax relief as a business expense.

An advantage of owning your own business premises is that you can let out unused parts of the building to other businesses and charge rent, which can then be put towards your mortgage payments to reduce your costs.

The only downside is that commercial mortgages often require a large deposit, but if the capital is there that won't be a problem. Depending on your company's situation and the building being purchased, the deposit can be up to 50% of the property value. You'll also need to be quite sure that you will be happy where you are as the costs of relocating will be very high compared with those of moving from one rented property to another.

Deciding to rent your business premises or to buy with a commercial mortgage will depend very much on the specific needs of your business. Taking into account the above points will help you come to the right decision for your business.


------

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