Every business manager needs a base to carry out their day-to-day operations, and you may be considering buying a commercial property. Whether this is the right thing for your business or not, is another matter. Certainly, if you can easily conduct your business from home, then why should you take out the expense of buying something? Alternatively, it may be more cost-effective to rent an office space. However, there are situations where you may need to buy property, such as if you decide to open a shop and want to live on the premises. To help you decide, this article will help you understand the advantages and disadvantages in buying commercial property, and will guide you in some of the financial implications in the buying process.
1. Advantages of Buying a Commercial Property
Provided you have the capital to buy a property, these are some of the some of the advantages in buying your own premises.
> Buying a property means it is yours to keep for as long as you need it. This will give you added security in conducting your business, knowing that you won’t have to move after a short-term lease or suffer the problems of a price hike in the rental of the property.
> You have the freedom to work on the building and design it according to your business. The space is yours, so if you aren’t sharing it with others, or have restrictions imposed by a landlord, you can adapt the premises to your needs. Should you need to hire new employees, you will be able to extend the floor and wall space to accommodate your growing staff. If you want to expand a shop upwards (or downwards), you will have the room to do so.
> Should you want to sell the property in the future, you will have the means to add value to the building and profit from the results later on. This will give you extra capital to move into bigger or better premises when your business needs demand it. You are also able to move when you want, as you won’t be tied down to a fixed-term contract with a landlord or property manager.
> As the owner of the building, you are in the position to rent space to other businesses, whether you operate from the premises or not. This will give you another stream of income to further bolster your bank account and give you the means to purchase new equipment, hire staff, and give you extra cash for those unexpected emergencies.
2. Disadvantages of Buying a Commercial Property
As with most things in life, there are disadvantages that should be taken into consideration before emptying your bank account to buy something. For example:
> Buying a property is a huge investment, and the money you use on capital could be better spent elsewhere. You need to have the means to operate your business and buy anything necessary for your work, on top of the cost of the property you intend to buy.
> There may be a downturn in the property market, so when it comes to moving on, you may not be able to sell your property as soon as you want. You may then find it difficult to recoup back the capital you originally used, and you may be forced to sell at a loss.
> You will need to keep up with mortgage repayments, so you are relying on your business to do well and make a profit. Should you run into any financial difficulties, you may face the risk of repossession or be left with negative equity.
> You are responsible for the upkeep of the building, so you need to be careful that you aren’t investing in anything that is a potential money pit. When employing staff and welcoming in customers, you will also need to ensure your building is safe, including making it fireproof. Any accidents and injuries as a direct result of health and safety hazards within your premises are your responsibility, and you will be liable for legal costs.
3. The Financial Costs of Buying a Commercial Property
Should you decide to buy a commercial property, you need to be aware of the costs involved. Some of these are obvious, but there are some you may not have thought about. Here is a rough guide as to what you should include in your budget plan.
> Unless you are buying the property outright, you will need to take out a mortgage. Because of this, you will need to have some capital for the down payment. Often, this amounts to around 10% of the property price.
> There are some fees you will be expected to pay. These include land registry, surveyor costs, and memorandum of transfer fees. While these are one-off costs, you will need to budget these into your capital before buying.
> There will be a number of ongoing costs. These include your mortgage payments, insurance costs, and your energy bills, including heating and lighting.
> The local council may charge you for specific services, such as parking, waste removal, and business rates.
> There will be unexpected costs, such as having to deal with property repairs in the event of damage, and regular maintenance to ensure the building is safe to operate in.
> Some costs are not essential but are recommended. For example, hiring a cleaner will save you a lot of time and work, and you may want to utilise the services of security personnel or equipment to keep your business safe from internal and external threats.
As you can see, there is a lot to budget for. However, there are ways to save money in your business, and this includes shopping around for the best deals from insurers and mortgage providers. You should also compare prices of similar properties, ensuring you get the best value for money from the property seller.
4. Bottom Line
We hope we have helped you in the decision-making process. Should buying a property be right for your business, consider the financial implications before going ahead. Otherwise, think about renting, especially if you are just starting out and don’t have the finances behind you.