For many small business owners, the opportunity of buying a commercial premises is a sure sign of success. Certainly, there are many advantages – which we will look at in just a minute – but there are also some issues that you should be aware of before you malinvest your money.
Let’s take a look at the pros and cons of buying a commercial property for your business and ensure you make the best possible decision.
The benefits
When you consider your assets, the people you employ to run your business are undoubtedly the best – but if you have a property, it comes a close second. Once you own premises, you have open doors to all kinds of things, from developing a secondary income from renting out spare space, through to borrowing more money for investment with your equity. Another advantage is the enormous capital growth potential. If you buy premises in an up and coming area, commercial property prices will almost always go up, and you will reap the rewards without lifting a single finger.
There are no landlord issues to worry about, either – you are completely free to develop the property as you see fit. There are tax advantages, too, as you will get relief on all interest payments, as well as depreciation of fixtures and fittings. Ultimately, however, owning premises for your business is an excellent way to prove to your customers that you are a success, and offers you a position at the top of your industry and location.
The problems
That said, there’s a lot to consider before you invest any money in buying a property. Obviously, business premises don’t come cheap, and any lender will want to see a large deposit of anything from 10-20 percent to even talk to you about it. There are other costs to consider, too. You’ll need to hire a structural engineering firm to check things over, pay for decor and new fixtures and fittings, and the insurance costs can be sky high, too, especially if your company is the only one ‘resident’ in the building.
Because there is no landlord to bail you out when things go wrong, you will also be responsible for the entire upkeep of the property. That means there needs to be a huge focus on health and safety, and everything from minor repairs to cleaning costs needs to be met. And, it’s also worth pointing out that banks won’t care how successful you have been in the past. In many cases, particularly for first-time commercial property buyer, they will insist you give them a personal guarantee, which is usually a big personal asset such as your family home.
Should you do it?
Bearing in mind that owning a commercial property is often more expensive than leasing one, it’s important to do the maths. If you can create extra income streams to support your costs, however, it’s very much achievable. And if you have solid plans for rapid growth, your own business premises can be the perfect setting to achieve it. As with anything else in life, as long as you plan ahead and base your decision on your head, not your heart, you will come to a safe and sensible conclusion. Good luck!
