Do you run your own business or professional practice?
Are you a tenant or do you own your own premises?
Should you remain renting, or should you aim to buy your own "home" for your business?
It’s a common question with a complex answer.
It even gets more complex when you realise your SMSF could buy your business premises and lease it back to your business.
The commercial team at CVA Property Consultants recently provided their thoughts on the pros and cons for both buying and leasing a commercial property.
Here's what they had to say:
1. You’re your own boss:
Buying your own workspace means you don’t have to answer to anyone if you decide to change the layout, interior design or structure of the building.
You control every aspect of the building and can adjust it to best suit your business and its needs.
It also means you don’t have to rely on a landlord or agent to arrange building repairs.
2. Lower ongoing costs:
Whilst there is a larger cost upfront, there are generally lower ongoing costs involved when you own a workspace.
Your mortgage is likely to be a consistent; a steady cost each month, rather than a fee that could be increased by a landlord should they wish to.
3. Your business has an asset you can sell:
If you choose wisely, the commercial property you purchase may also rise in value depending on its location and how you may develop.
You may be able to sell it later on for a reasonable profit or to help finance your future business plans.
1. Expensive up-front costs: When you purchase a commercial property on behalf of your business, there is going to be quite a large upfront cost, which could mean it will take you a little longer to generate enough money to be able to purchase it. Your ability to borrow money can also be subject to changes in interest rates which could affect your ability to buy and slow up the process.
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2. Less flexibility: Buying a commercial property can impact your businesses ability to grow, particularly if you don’t think ahead.
It’s important to consider how quickly you expect your business will grow when you choose to buy as you do not want to outgrow your workspace and need to sell too quickly.
In this instance, leasing could be a better option for you as it will remove the stress of having to sell the property and buy again.
3. Damages that occur to the building are your responsibility:
When you lease, it is the responsibility of the landlord or agent to repair any damages or ageing materials within the property – if you buy this will be your responsibility and could be an additional hassle you don’t need when you are trying to run a business.
If your building experiences damage due to fire, storms, floods or more, this will be your responsibility to repair.
Leasing a commercial property means your business is not locked in to a fixed location and there is a lot of flexibility should the size of your business change rapidly.
Shorter term contracts allow you to be able to move if necessary and relocate to a larger or smaller workspace to suit your needs quickly, rather than having to wait until you sell the property before buying a new space.
2. It may be easier to find a prime location: Prime commercial property locations can be tricky to find, particularly in Melbourne’s CBD where properties are in high demand.
Leasing may provide you with a more affordable way into these high demand areas, allowing you to have a prime business location without having to fork out a huge expense to purchase the property.
3. Faster response to business needs: Buying a commercial property is a significant expense, with the potential to affect many areas of your business.
Because of this, it may take longer for the ‘perfect’ long-term property to be sourced, rather than a shorter-term rental.
During this time there may be delays on meeting the current needs of the business - for example, you may be in a workspace that is a little small for too long, and as a result, leasing could be a better option should you need to upgrade quickly.
1. You report to a landlord or agent: Leasing a property means you have less control over the property itself and any changes you would like to make to the structure, design or layout of the property will have to be run through the landlord or agent which means you have less flexibility on what you can do with the space.
2. Your rent could increase: When leasing a commercial property for your business, you have limited control over what the owner of the property decides to do with your rent and they may choose to increase it should the property rise in value and the location becoming higher in demand.
This means there will always be a level of uncertainty when it comes to the finances you will require to rent the building.
3. You have no asset at the end: If you don’t own the commercial property, your business will have no asset that you could potentially use in order to borrow against to fund future business expansions.
By having a property that your business owns it could bring you potential capital for growth in the future.
The important thing to remember is that every business’ needs are different depending on many factors.
Remember that one size does not fit all and to seek advice if needed.
Read more at CVA Property Consultants