One of the most difficult decisions business owners will face is whether to buy or rent commercial property.
Although both options have their pros and cons, there are many benefits of buying in the current property market. Sure, purchasing business premises requires capital. However, if you don’t have the cash up front, the good news is that there are several funding options available. Intrigued and want to know more? We’ve got you covered with this simple guide to buying commercial property right now.
An Overview of the Current Property Market
First things first, let’s talk about how things are looking in the commercial property market. Thanks to COVID, we’ve seen a significant shift in consumer behavior and working patterns. More businesses are adopting hybrid working models with an increased number of employees working remotely than ever before.As a result, the demand for offices and retail premises has reduced, especially in major cities. Even so, the haulage, distribution, and logistics sectors continue to thrive. This has created a supply and demand imbalance within industrial property stock, which is driving prices further upwards. When all’s said and done, the outlook for commercial property looks positive. That’s why now when others are fearful, might be the right time to invest.
Benefits and Considerations of Buying Commercial Property
There are several benefits of buying commercial property in today’s market. Let’s discuss them one by one, shall we?
Avoid Steep Rental Costs
Just like when you rent personal property, renting business premises means that you may have to deal with unexpected or large rent increases. Buying commercial property enables you to future-proof the business by taking control of your overheads for the foreseeable.
Increased Capital Value As Time Goes On
It’s likely that the commercial property that you purchase will increase in value over the long term, meaning that you will benefit rather than your landlord. Once you sell, there is also likely to be a profit rather than a loss on disposal.
Full Control
If it’s purchased personally or through a commonly-owned company, commercial property can provide a supplementary income in the event of a sale or retirement for the owners. Likewise, you aren’t tied to the property for a set period of time and you can choose to sell as and when you see fit. When you rent commercial property, you are locked into fixed-term contracts and there’s not as much flexibility.
Low Monthly Costs
Commercial mortgages are generally considered a low-cost method of financing. You can rent part or all of your premises to other businesses if you wish, which is not always possible when you rent a commercial property. Similarly, you can release equity in the future to fund other business projects.
How to Go About Buying Commercial Property
Convinced that buying commercial property is for you? Excellent — here are 5 steps you can take to kickstart the process.
1. Assess Your Finances
Firstly, you need to get your finances in check. Figure out your monthly income, business expenses and then work out the maximum amount that you can afford for mortgage repayment. Don’t forget to build in a bit of leeway for unforeseen circumstances, such as broken equipment or a drop in income.
2. Figure Out if You Can Afford the Deposit
Ask yourself: do I have access to a deposit contribution right now? Or am I looking to fund this elsewhere? Sometimes it’s better to lend a deposit contribution rather than spend outside your means and have to struggle in the months after paying the deposit.
3. Consider Your Ownership Options
Have a frank and honest conversation with your accountants. Seek their advice when it comes to whether you should buy the property through your business or whether the asset is best owned outside the company via:
- A holding company
- The directors personally
- Using a pension fund
It all depends on what makes the most sense for you and your business.
4. Brief Commercial Property Agents
Perhaps you’re able to purchase the existing trading premises that you occupy — and that’s great. If not, speak to Commercial Property Agents in your area. Give them a brief when it comes to your requirements and budget so that they can come up with the best solution.
5. Look Into Your Funding Options
Finally, research potential lenders if you need to. Keep in mind that lenders will often fund the lower purchase price or valuation. Then the funders will look for a deposit contribution from the borrower of at least 25% on commercial mortgages. If you’re struggling to find a good business finance provider with experience and efficient service, PMD can assist with deposit contribution shortfalls. Capital and interest or interest-only options are available with maximum term loans of up to 25 years. We can also support refurbishment costs (if required), whether you’re a limited company, individual or partnership, LLP, pension fund, or SPV.
Contact us today to find out more about how we can help.
The Takeaway
Buying commercial property is a big deal for any business, but one that has been proven to be very worthwhile. As with most things in life, it’s best to consult the experts so that you have all of the information at your disposal before you go ahead. That said, in the long run, there’s nothing that beats the freedom of having your own premises to do with as you wish.
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