Owning vs renting your business property

Acquiring your own business property is the desire of many business operators. In doing so, you achieve the perfect scenario of having ‘the best tenant and ideal landlord’.

Many businesses start leasing their business premises and find issues with dealing with their landlord, including;

  • Disputes over repair responsibilities and liabilities
  • Strict conditions about changes to their premises
  • Duration of a lease and expiry period
  • Rent indexation
  • Departure clauses and ‘make’ good conditions
  • Market review issues on rent

You can eliminate all of the above difficulties by purchasing your own premises. There are dual benefits; as a tenant and as a landlord.

As a tenant the benefits include:

  • Maintenance or repair work can be attended to immediately with no dispute as to liability or responsibility.
  • Substantial improvements, additions or extensions benefit your business and potentially add capital value to your asset held as landlord.
  • No bond or guarantee is required
  • Save on legal costs as no need to draw up a lease
  • Structural changes can be made at will
  • Rent can be fixed or reduced to asset cash flow requirements.
  • Flexibility – if you have a bank loan or debt facility you may require the rent to service them

As a landlord, the benefit revolves around the trust factor you have with yourself, as the tenant. Having yourself as the tenant will ensure that the property is maintained and respected. It will guarantee longevity of the lease and potential improvements and additions can add to the capital value of the property.

However, owning your own business property is not always the best option. Firstly, you need to decide whether investing your hard earned money into a commercial property is the right investment strategy for you. Often, the business premises is far more expensive than purchasing the business itself. Purchasing a commercial property will require a large capital investment with potentially a sizeable loan and large repayments.

If you purchase a commercial property and then your business starts to struggle or fail, it means that you have increased your risk exposure. Suddenly, you can find that you have an ailing business and, as a landlord, a potential vacancy without any alternative. In actual fact, you have invested a significant amount of money into the success of your business and this carries with it a significant risk of premium.

Another issue to address is the suitability of that particular property for your business. Often, a premises can seem perfect for a business. But circumstances change and business are dynamic. There is always the option of selling the property or leasing it out, but the property purchase should be a longer term strategy- perhaps eight to ten years minimum.

If purchasing a business and the business property, you must consider separating the two assets by having a different structure for each property to maximize tax advantages and offer significant asset protection.

Finally, only proceed if you are confident about the success of your business. You must have the funds or cash flow to service the loan to buy the property and you must be certain that the premises will satisfy your business needs in the long term. If so, then acquiring your own business property is an exciting option.

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