All The Advantages and Disadvantages of Buying Commercial Property
Buying your own business premises is the ambition of many companies. Having a secure, stable base from which to run your company can be a huge benefit as can the capital you can accrue by owning your own property. However, there are many pros and cons to buying your own office or retail unit. Taking out a commercial mortgage is a big step so before you commit, read our guide to the main pros and cons of owning your own commercial property.
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.
When buying commercial premises, many companies buy property that is bigger than they actually need. There are two main reasons for this. Firstly, it allows you to sublet the spare space to another company. This can generate valuable income which you can use towards making your commercial mortgage repayment. Do not forget to get your commercial lender's consent to do this.
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.
Owning your own commercial property means that you also benefit from any appreciation in the value of the property. Property prices tend to rise over the long term and so owning property means that you will benefit from any increase in its value when you come to sell it at a later date. Furthermore, the interest payments on your commercial mortgage are tax deductible.
Cons: One of the main reasons why businesses are deterred from taking out a commercial mortgage to buy business premises is because of the amount of deposit that you have to put down. A lender will often require between 25 and 50 per cent of the purchase price as a deposit. Many businesses simply do not have that level of capital available whilst many others have better uses for the money.
Buying a commercial property also makes it more difficult to move in the future. If you had to relocate to larger premises this could be tricky as it can take a long time to sell commercial premises. Ending a lease is relatively easy by comparison.
The final disadvantage of owning your own property is that you will be responsible for all the associated maintenance and repair costs. When you rent a property you will often find that your landlord is responsible for much of the repair work. However, when you own an office or factory you will have to meet the costs of ongoing maintenance work yourself.
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.
About the Author:
Howard O'Gollegos writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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