As Australians, it’s been ingrained into our DNA for generations that we should buy our own property. Buy yourself a home as soon as you can, and your life will sort itself out. That has been the traditional way for many families. This way of thinking is also what begins most commercial property portfolios, however what most people fresh into the world of commercial property don’t realise is that compared to buying a home, buying commercial property is very different.
The main question posed when your business is booming, is “Could this business be better off with our own commercial property?” or should you just keep leasing? There are many variables however, and they all depend on what stage of business you are at, and the type of business or industry you are in.
Here are some crucial things to consider.
In commercial business, you need capital funds to buy property. Most of the big banks will require anywhere between 30%-50% of the property value as a deposit. Unlike your home loan which requires a far smaller percentage. Can your business afford to tie up that much capital?
Maintenance costs of a commercial property can be substantially higher than a home. If you are looking at commercial property already, check the maintenance history as far back as you possibly can, and weigh up the costs, and add a few thousand for future inflation and aging buildings. Maybe your dollar is better spent developing your business in other ways.
Investing in commercial property usually means you have to stay there for at least five or ten years. That means there is no room for expansion if business goes really well. You will be tied up with the property, and this could be tough for your business. Are you certain you want your business to stay in this area long-term?
Other factors that may swing you back to leasing is the fit-out costs associated with buying your own property. If you are in the restaurant business for example, the fit-out of kitchens and the aesthetic application can be costly. If you plan on being there for a long time however, buying can be a better option than renting, as landlords may not approve of certain aspects of your fit-out.
In most retail circumstances, renting is a far better option, as the cost of commercial property in high traffic retail precincts are either very hard to find or very expensive to attain. Typically, retail property is very easy to come by if you want to lease and this gives you the option to move and expand when you need to.
No matter which way you go, there is a big commitment involved in commercial property and it can be very stressful for businesses. Put together a buy verses lease analysis if you are considering your options. Work out your costs over a ten-year plan, and decide what will be best for your business, and you, for the long run.