When running a business, there comes a time when you want to move to a new office space due to reasons like expansion and need for change, among others. Renting space is the most sensible alternative, especially when the business does not have adequate capital. However, if the company is already established, buying a commercial property to develop your dream office may suit your business goals. The guide highlights factor a business should look into when deciding whether to rent or invest in your dream office.
The Business Plans
Having long-term plans helps a business in deciding whether to rent or buy a commercial property. Long-term plans enable a company to forecast the size of the business in five or ten years with certainty. If a company can’t predict the size or future operations with confidence, it should consider renting. It’s easier to move out of a rental space that has outgrown a company.
Purchasing property means that a significant amount of cash is held up in the upfront costs. Deferring such amounts of money may lead to slow growth of the company after settling in the first few months or years. The business is also prone to a future capital loss if the purchase price exceeds the selling price. Experts at Proplist explain that renting property frees up cash associated with such upfront costs and loan payments if the business has taken up a mortgage.
The length of Operation
Business owners should consider duration they want to operate in the area. If the owner has plans to relocate shortly then renting makes a better alternative. Also, if the business intends to set up a different venture in the future, consider renting the space.
Businesses looking to rent a property are required to come up with upfront costs that include agent fees, conveyance fees, fit out costs and a deposit that makes up 30% of the purchase cost. The rental cost also consists of the rental amount, usually based on the annual CPI. This is often the most significant expense of a business. When purchasing a property, however, the company incurs one fixed cost, i.e., paying for the commercial loan.
Businesses that have operated for a long time have already experienced the ups and downs of economic systems. Most such situations are unpredictable and impact negatively on a business. If the company expects to change its size rapidly during the next phase of the economic downturn, the premises should be flexible. A business that needs to move and has purchased property has little flexibility. It can only cope with the prevailing situation, which may lead to significant losses. Renting provides great flexibility when it’s time for the business to move and expand to other locations.
If you have purchased a property with additional space, you can sublet the area to provide the business with a new stream of income. Also, purchased property allows the company to make improvements that can add value during a sale. Businesses that rent, on the other hand, can’t make such adjustments. The only advantage they have over a purchased property is the lower lease payments, which are often more economical than the mortgage payments. Also, tenants have the freedom to extend the lease period.