Nowadays, businesses operate from various commercial properties. These properties may range from offices, factories, and storefronts. Whether you are a new or existing business, you need to decide whether to purchase your own commercial property.
Various factors determine the kind of commercial property you require. Among these factors are taxation, recurring costs, business equity, and cash outflows. Here are a few pros and cons of purchasing your own commercial property.
Pros of Buying Commercial Property
Paying for a commercial property in cash gives you a 100% ownership rights. But if you decide to finance the purchase with a loan, your initial payment and monthly payments will increase your property’s equity. In case you resell or refinance the property, your equity is the difference between its fair market value and any loan balance you have. All the same, having equity in a commercial property increases the value of your business.
In purchasing a commercial property, you benefit from your asset’s appreciation over time. However, the appreciation of any commercial property for sale varies based on factors such as prevailing interest rates, inflation rate, supply, and demand.
Often, businesses that purchase their own commercial property use about 51% of its space. Why is that so? This is because lenders consider a purchased commercial property as an investment whose ownership share is minimal. As a result, it is difficult qualifying for loan financing. So, if you have some leftover space, consider renting it out to create an income stream from your property.
Purchasing a commercial property gives you total control over it in accordance with zoning regulations. This means that you don’t need a landlord’s permission to remodel your property. Plus, you get to make fixed monthly mortgage remittances instead of rent payments unlike with a leasing arrangement in which prices fluctuate.
Cons of Buying Commercial Property
When buying a commercial property, initial payments can range between 10% and 40% of a property’s value. Also, you have to pay due diligence fees, goodwill, and closing costs. For instance, a £1,000,000 commercial property for sale attracts a down payment of between £100,000 and £400,000.
You need some liability insurance policy to protect yourself from lawsuits in case someone gets injured within your property. What’s more, you are subject to property manager liability when you rent out a section of your property. This means that you require some additional insurance cover. Besides, all repair and maintenance costs are your responsibility.
Most commercial property loan lenders charge hefty prepayment fees and other penalties. These charges are levied on you when you opt to prepay the loan balance.
You Risk Losing Liquidity
Remember that buying a commercial property for sale ties up your finances. This means that if you need to recover your investment, you’ll need to sell off the property or consider a partial refinancing. What’ more, there is the risk that your property’s value might decline in the future.
Only you can analyse the above pros and cons before deciding whether to purchase a commercial property. Luckily, assistance from commercial property leasing agents can help you make the most suitable decision for your business