Buying premises will be one of the best decisions for most business owners
Most businesses will require their own premises and are generally faced with the option of renting or buying. The obvious choice for many is to buy, subject to available finance, but there are advantages and disadvantages to both sides.
The advantages of purchasing business premises are:
- Provides the owner with the freedom to use, renovate and change the property to best suit their business needs (subject to council and building approvals).
- Potential capital gains when the building is sold.
- Ability to turn the property into a rental property in the future.
- Mortgage costs can be fixed so the purchaser knows the annual costs. In contrast, renters can be subject to landlord rental increases.
- Ability to move the business in the future as you are not tied to long term lease agreements.
The disadvantages of buying business premises includes:
- It ties up a lot of capital which could instead be used to invest in the business. It may be difficult to recoup the capital quickly.
- The financial pressure of mortgage payments can be a cash flow drain on new start-up businesses.
- The business may outgrow the premises and need to relocate.
- Ongoing renovation and maintenance costs can be expensive.
For the majority of business owners purchasing their own business premises will be one of the best business decisions they can make. It provides the business with stability and strong foundations from which to grow. In addition, commercial property has been a strong investment performer producing combined rental and capital gain returns of over 10% per annum.