Both new and experienced business owners have likely toyed with the idea of purchasing the building their business resides in. From a convenience standpoint, it makes complete sense. You already work in the building and are responsible for a percentage of its upkeep, so it’s not a huge leap to want to hold its title and take over full responsibility for it.
However, there can be both advantages and drawbacks associated with commercial building ownership. Being aware of them might help you make a well-informed decision about whether you continue leasing or leap onto the commercial property investment ladder.
Pro: You Don’t Answer to a Landlord
You might decide to find out more about purchasing a commercial building for your business when you dream of one day not having to answer to a landlord. While commercial tenants have many rights regarding how they use their space, they can be at the mercy of the property owner when the time comes to renew an agreement or negotiate lease terms.
Those days can be over when you purchase the property your business resides in. Rather than paying expensive per-square-foot lease rates on top of everyday building costs and utilities, you only have to concern yourself with property taxes, insurance, and many of the same expenses you would have covered as a tenant.
Con: You Can’t Easily Leave
Many businesses experience unprecedented growth that quickly sees them outgrowing their premises. As a leaseholder, you can simply choose not to renew your tenancy agreement and find a more suitable building for your needs. However, your fast business success or a change in direction can be challenging to manage if you own the building you work in. Renting it out to another tenant or selling it can be two of the very few options available for making relocation viable.
Pro: Your Location Is Permanent
While you can hope that your building owner will continue to let you lease their property for as long as you’re in business, that doesn’t always happen. Some landlords decide to sell, and others opt for redevelopment. Sometimes, landlords even choose to evict tenants for various reasons. Typically, your location is permanent, and your future is secure when you own your building. No one can evict you, and only you can decide to sell or redevelop in the future.
Con: Significant Upfront Investment
Purchasing a commercial property will see you with a desirable asset, but it requires you to part with a considerable sum of money. Commercial real estate loans can differ from residential loans, with borrowers often required to have a downpayment of 15% to 30%. The loan periods can also be shorter. As a result, monthly payments plus the initial down payment can cause a great deal of financial stress for a business, with no relief even during economic downturns.
Pro: You Have a Sellable Asset
Buying a business as a going concern with everything you need to run it can be desirable. However, many businesses only come with client lists, employees, stock, and equipment housed within a leased building. Your business can be different. Should you choose to sell it in the future, you can sell it as a going concern with the added advantage of commercial property as a significant asset.
There can be much to think about when buying or leasing commercial properties. Don’t underestimate the importance of weighing the pros and cons and talking to legal experts before making your final decision.