If you require the use of commercial property for your business, then one of the biggest choices you might find that you are faced with is whether or not you should buy or rent. The journey towards a decision isn’t always going to be clear cut and, whilst your budget will largely determine what avenue you go down, there are pros and cons to both owning and leasing, particularly if you are a small business owner.
Before you make a decision, it’s important to weigh up each side of the argument, consider the needs of both you and your business and look to develop a business plan, as this could help you to make a more informed decision. With that in mind, let’s take a look at whether you should consider buying or leasing commercial property in Hull.
Buying vs Leasing: Which Is Better?
A lot of businesses prefer to rent commercial premises. This is because rent makes up a low proportion of business costs, particularly for solely office-based companies. But, it might also be attractive to some business owners to say that they actually own their business premises.
As such, businesses often invest in buying property and then sub-let parts of it to other businesses to cover the mortgage and utility costs. There is no right or wrong answer to whether buying or leasing is the best option, it is solely dependent on which option is best for your unique business plan.
Leasing Commercial Property
Leasing commercial property is a good option for start up businesses, particularly if they can’t accurately predict their revenue in the near future. This means that, if things don’t go to plan, then business owners aren’t left with an expensive commercial mortgage.
Advantages Of Leasing Commercial Property
- Renting is straightforward – when you lease commercial premises, you will need an initial deposit and then the ability to cover monthly payments. Leasing then won’t tie up large amounts of capital and you’ll also have more choice in terms of property types.
- Business expenses – by leasing commercial property, you can deduct the rental costs from profits, which means you will be paying less tax on revenue.
- There’s less work – as a commercial property tenant, this means that your landlord is responsible for ongoing maintenance and, depending on the clauses of your lease, you may get other amenities and services included.
Disadvantages Of Leasing Commercial Property
- Space restrictions – when you lease commercial space, there are restrictions on what you might be able to do with the office space. Any changes you had in mind would need to be approved by your landlord. When your lease is up, you will likely need to reinstate the office back to the original look.
- Fierce competition for prime property – unless you’re negotiating or signing a long-term lease, you might face fierce competition for your property.
- Long term commitments – leasing commercial property may leave you liable for additional costs and, if your business slows down or fails, you will need to keep paying rent until the lease expires.
Buying Commercial Property
Buying a commercial business premises is a big investment to make and can, over time, help you to increase your value. Commercial property can be listed as an asset on your balances, so it could be used to raise funds in the future.
Advantages Of Buying Commercial Property
- Long term cost benefits – when buying commercial property, you can fix your mortgage payments for a set number of years, much longer than a typical commercial lease. This then allows you to offset interest payments and mark them as an expense against earnings, which can lower your corporation tax liability.
- Flexibility – buying commercial property gives you more opportunity to create the space which works for your business. By buying commercial property, you have the final say over the design, layout and branding of the premises.
- Subletting income – if you no longer require the premises that you have bought, you can make money on it by renting it out to other companies.
Disadvantages of Buying Commercial Property
- Capital requirements – buying commercial property requires a large amount of capital. This means that you may need to take out a commercial mortgage to buy the property if you don’t have the funds upfront. You may find that a large deposit is required with commercial property, sometimes up to 40% of the purchase price.
- Profit impact – having a commercial mortgage could then impact the profitability of your business. Your mortgage payments could be affected by rises in interest rates and this can then lead to unexpected cost increases.
- Selling – when the time comes, you may find that selling your commercial property can be a slow and complicated process. This has the potential to hinder and affect your business should you be looking to move to another office, or relocate to a better location.
Things To Consider When Looking To Buy or Lease Commercial Property
How Long Do You Plan To Remain In The Property?
When deciding to buy or lease, you should look to analyse your business’s goals and financial capabilities. This can help you determine the length of the occupancy of the premises and whether it would be better to lease or buy.
Renting commercial property offers a wider range of options in terms of flexibility, particularly if you are a relatively new business. Leasing allows you to have the premises for a clearly defined period of time, and in a lot of contracts, you may be able to negotiate break clauses to get out early.
Can You Afford To Buy The Property?
Buying commercial property does require significant costs upfront. Having access to capital is required, however, this should be done without putting any strain on your business financials. This can include funding an initial deposit, as well as associated purchase costs including stamp duty, land tax and property surveys.
You should consider if your business generates enough income to cover regular mortgage repayments, whilst being able to maintain a healthy cash flow. You also need to factor in the ongoing costs of owning a commercial property, such as maintenance costs, insurance and potential repairs.
What Are Your Business Needs?
When deciding whether or not to buy or rent commercial property, you need to determine your business’s unique needs and operational requirements, as this could be a key determining factor. Some businesses might have specific needs, such as specialised infrastructures and facilities which need to be accommodated, or location-specific needs.
Conclusion
Deciding whether to buy or lease commercial property is a big step to take when it comes to your business and is something which requires careful consideration. No matter if you prioritise flexibility, financial security or stability carrying out a full analysis of your business needs is important when deciding whether to lease or buy.