Should a business buy or rent its premises?

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Question

Many businesses rent property while others own their premises, but what are the pros and cons of either option? Here are some reasons why businesses make the property decisions they do:

Why own property?

• Property is a company asset that should increase over time and provide extra financial backing for a business. This can be used as security for borrowing.

• A commercial mortgage on a fixed interest rate means that the property overheads can be managed without the fear of large rent rises.

• Many companies purchase property larger than they require in order to rent out the excess space. Rental income can cover, or at least contribute towards, the monthly commercial mortgage repayments.

• Some businesses purchase land and then construct modular or prefabricated buildings. These can be cheaper than purchasing an existing brick-built property and cheaper than renting in the long term.

Why rent property?

• If a business does not have a healthy cash flow or cannot afford the deposit required to purchase a commercial building, then renting is the better option.

• If the business is expecting to rapidly expand in the near future, it may be wise to continue renting during that period of growth, then consider buying later.

Purchasing property requires careful planning and commitment, so businesses need to weigh up the advantages and disadvantages before deciding. If your business wants to invest in property, talk to a broker, who can find a commercial mortgage at a low interest rate.

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