Renting Vs. Buying A Property For Your Business Location

The business location is the physical manifestation of a brand. It must match the reputation and image of the entity in the marketplace and its perception in the customers' minds. The property chosen as the business address must be visible, centrally located and positioned as a landmark in the precinct. It should have all the modern amenities and must be loaded with features that help make an impressive impact on customers and employees. A premium commercial space in Perth CBD can be expensive and require a significant investment.

Thus, many new entrepreneurs prefer leasing a prime commercial asset to manage their finances effectively. However, renting has downsides that can affect the business in the long run. It puts a lot of business owners in a dilemma when they need a new space for their ventures. Let us help by offering a clear distinction between renting and buying commercial property through their pros and cons. It is the best way to make an informed decision that suits your business requirements and budget.

Pros of Renting a Commercial Property

Leasing commercial real estate is beneficial because the contract lasts a long-term and the tenant does not have to look after the maintenance of the structure. Let us look at the advantages of renting a business location.

1. Move Your Business Whenever Required

One of the biggest advantages of leasing is that the owner can move out of the property by terminating the agreement. Entrepreneurs who purchase a business for sale Perth may want to expand or downsize in future and can do it easily with a rented property. They can move into the CBD if the entity is performing well or to the suburbs to cut costs if needed. They can maintain the flexibility of choosing their place of operation with a leased property.

2. Start-Ups Can Benefit from Leasing

Recently established businesses do not have the creditworthiness or goodwill in the market to borrow a large amount to buy property. Also, it will lock in significant capital in the asset and leave the venture with low working capital. Start-ups also suffer from the risk of failing in the first few years. Thus, leasing is the best option to save capital and manage finances efficiently for growth. It applies to all ventures that are still in the growth stage.

3. Claim Tax Deductions for Rental Expenses

Tenants can claim a tax deduction for their rental costs. If the rent includes GST, entrepreneurs can also claim GST credits. It helps to bring down the monthly business expense and put the saved capital back into the business for development. Renting proves cost-effective because the entrepreneur does not make a huge down payment or take out a big loan that can become unmanageable in the long run. They can even negotiate the rent before signing the agreement to bring it down.

Cons of Renting a Commercial Property

Now, let us look at the disadvantages of commercial leasing for tenants who have recently purchased a Perth business for sale or built a start-up.

1. Pay Outgoings for the Property

Most commercial leases favour the landlord, who offsets the outgoing expenses to the tenant. Thus, the lessee has to pay the rent and several other costs, such as council rates, insurance, water rates, maintenance costs, electricity, and land tax.

2. Instability and Annual Rent Review

Tenants can be asked to vacate by the landlord before the end of the lease by giving a notice. Also, they increase the rent amount annually and there is less control over the changes that can be done on the premises because of restrictions from the lessor.

3. Maintain the Commercial Premises

The tenant is responsible for the cleaning and repair of the commercial property in case of any damage. The landlord is only responsible for structural damage and cleaning common areas like lifts and parking.

Pros of Buying a Commercial Property

Entrepreneurs who purchase a Perth business for sale consider owning commercial real estate for the following reasons:

1. Control Over Property and Stability

Buying a property ensures you do not have to move after a few years. The business will have the same address which will increase its credibility and retain employees. The owner can make changes to the premises according to the business needs.

2. Effective Cash Flow Management

When entrepreneurs pay rent, they are not creating any wealth. However, they build an asset for life when they pay the mortgage. Also, there is no annual rent review, and the operational costs can be managed as per the availability of capital. It helps with effective financial management.

3. Own An Appreciating Asset

Entrepreneurs who purchase real estate have a stable asset that keeps appreciating as the value of the land increases. They can expand the structure and lease it to others to gain extra income from the property. It creates business equity and boosts financial health.

Cons of Buying a Commercial Property

While owning a business premises seems like a promising endeavour, it can be challenging for the following reasons:

1. High Cost to Bear

Prime office space in a store in a busy commercial precinct is expensive and hard to afford for small businesses. While those who purchase an established business for sale in Perth can take out a loan, start-ups find it challenging to get funding for property. Also, commercial loans cover only 60% to 70% of the cost, and the rest is a down payment. It will tie up a big amount into the property, leaving the business with limited capital.

2. Movement Restriction and Responsibility

Entrepreneurs who purchase a property have to stay in it for good. If they expand in future, they may find it difficult to accommodate new employees and equipment in the same space. Also, they have to manage the entire premises without any help. So, cleaning, outgoings, and maintenance responsibilities can become overwhelming while running the business.

3. Challenging to Own During Economic Crisis

During an economic crisis, property prices can decline. If the business also faces the heat and needs money, it cannot sell the asset because of the price drop and the unfavourable market conditions. Thus, it is difficult to turn it into capital in an emergency.

Wrapping Up

Buying and leasing commercial property come with their own advantages and disadvantages. Entrepreneurs must compare them and match their suitability with their business to find the appropriate option.