A large investment that you will make when starting or expanding your business will always involve an office or commercial space. However, to ensure the success of your business, it is essential to weigh your options and see what renting and purchasing commercial space will do for your business.
Here is some important information to help you decide:
1. Financial commitment
Your financial commitment if you buy the property or the space can be as low as nothing. However, you will need to raise enough funds to purchase the property. You can buy property through a loan or mortgage. While this process increases your financial responsibility, it will eventually mean that you will own the property even for a minimum down payment.
Whatever financing you decide to take, the most important benefit you get from buying space is the equity you gain over time. As the land appreciates, your business earns equity on the real estate that you have earned by purchasing the land or property. Although land prices fluctuate depending on the economy, you usually experience an upward trend, increasing the value of your property.
As for the rental of a commercial space, you do not have to pay a deposit but only a deposit of at least one month up to six months’ rent. However, no matter how much your landlord’s deposit will require, it’s always significantly less than the down payment when buying a property. Thus, the advantage of renting a property is more advantageous for startups or small businesses.
However, it can still be costly. If you find the property through a broker, you will need to pay the brokerage fees. To solve this problem, you can easily go to websites like https://www.rooftoprentals.net and other businesses leasing commercial space to save on brokerage fees.
In addition, you will either pay annually for each rental year or through a one-time fee. However, you won’t be spending as much as the person buying the property. Thus, you save money by allowing your business to focus on projects geared towards the growth of your business.
However, this has a downside, as it is not your property; you don’t earn any equity after the term ends. In general, since you are paying to borrow the property, you do not own it, no matter how long the rental is. Not to mention that you will be subject to rent price changes when your rental agreement expires.
The benefit of buying your property eliminates the need to re-inform your suppliers or customers of new locations your business has moved to. As a result, your business gains an edge over its competition by purchasing properties with easy access to its customers and its supply chain.
In addition, you gain flexibility by having complete control over the layout or design of your building. So you can design or rearrange your building floor plan to best meet your business needs.
However, you might not have the chance to buy a good property, depending on the location. For example, you might not find a property for sale in highly urbanized areas where landlords plan to keep their property and make money by renting to their tenants. If you find someone willing to sell, you may need to buy an entire building. As a result, it will be priced too high to consider it a wise business decision.
So, in these cases, you should rent instead. However, leasing might not be a bad idea given the flexibility it gives you and your business.
When looking for space in central shopping areas, you can find a lot of it. So you have the opportunity to test the area and see what gives you a better location for your business. Also, if you find a good neighborhood, you can decide to extend your contract for several years.
So, at the end of your one-year lease, you can choose again whether your business needs bigger or better space to grow. All in all, it gives you the flexibility to change the location that your business may need.
3. Use as an investment to support retirement
No matter how much you love your business, a time will come when you will have to let others take care of it if you choose to. sell your business, the better because you can fund your retirement. What’s even better is when your business owns its own land or property. You can also sell it as a package and even get more of its equity as it may have increased in value over time.
Since most business cycles are seven to ten years long, you need to understand that selling your property should be a long-term goal. So, it’s best to start buying a property early on, well before its prices go up.
On the other hand, if your business only rents out space, you may not be able to take advantage of the equity in the property. While you can also sell your business, it may be for a lower price compared to the benefits of having a business with its own ownership.
4. Repairs and maintenance
The underlying cost of owning your building or space is the need to shell out money for the maintenance and repair of utilities. Thus, your company must allocate a repair and maintenance budget for the following years. In addition, the older the building or establishment, the more expensive it will be to maintain.
But when you rent, you don’t need to plan and budget for it. Although you are using the space, your landlord is responsible for maintaining and repairing the space utilities. So you can leave the planning and worry to them. Also, if there are any issues related to the property, you can easily pass them on to the owner and let them handle your problem.
Although in some cases where you might be required to help spend on improvements and damage to your business, it will always cost you less. This is because your monthly rental fee already includes maintenance and repairs over time. Overall, your business will be free from the management of property maintenance and repairs.
Each option, renting or buying commercial space, offers your business advantages and disadvantages. So, all you have to do is re-evaluate your business budget and your long-term goals. Suppose you can buy a property, the better because you can use its equity for your business in the future. On the other hand, if the budget is low, renting space may be a better option.
Especially if your business needs to move from one location to another, it may not be necessary to own a property. What you need may be a space that can meet your current business needs.
Harold Bolden is a property manager. He enjoys sharing his expertise with real estate investors and aspiring real estate management professionals through guest posting. Harold also hosts webinars and live seminars on property management.