10 things to consider when you’re thinking of buying a property
When it comes to the question of whether it is better to buy or rent your business premises, the phrase used most often by business experts is “it depends”. Jeremy Lang, Business Partners regional general manager, is no exception. It is an age-old question, he says, in which each business must grapple with its own unique needs and circumstances.
He offers the following checklist to help business owners frame their thinking:
- Has your business stabilised? The most common mistake business owners make with regard to the buy-or-rent question, says Lang, is to buy a property too soon. Wait till your business is on an even keel before you buy.
- How badly do you need security of tenure? Shop-front retailers who will lose customers when they move, and manufacturers with large machines that cost a lot to move are most in need of a permanent base. Ownership trumps renting in these cases.
- Do you need to be able to move quickly? If you expect rapid growth of your business, for example, you may not want to be stuck with the ownership of your pokey first premises.
- How much do you need to customise your space? A lease normally limits your ability to make changes to the building. If you have to make a lot of alterations to accommodate your needs, it may be better to buy.
- Compare the cost of renting to the cost of monthly bond repayments over the period of the bond. Renting may be cheaper to begin with, depending on the size of your deposit, but may overtake bond repayments through annual escalations.
- In weighing up renting versus buying, don’t forget to add property taxes and maintenance expenses to the cost of ownership.
- Consider the investment required for a deposit: Firstly, can your business afford the cash drain? Secondly, even if it can, will you not make a better return on the money by using it in your business rather than investing it in a property? Thirdly, even if the money could yield more in your business, your investment into a property could be a useful form of collateral against which to raise finance for your operating business in the medium to long term.
- Interest rate volatility versus rental escalations: When you buy a property you don’t have to worry about annual rental escalations, but the risk is that interest rates may rise and push up your bond repayments.
- Study the property and the area: All your careful considerations can come to nought if it turns out that the building you bought is defective in some way. Do a careful check on all technical aspects of the building. Conduct research on the area in which you wish to purchase to ensure that there are no imminent developments or other factors that could limit the return you expect to gain on your property investment.
- Do you qualify for a 100% loan? Business Partners will consider giving you a 100% loan to buy a viable business premises without the need for a deposit if your business is older than 3 years, and if it can afford the repayments.