July 21st, 2014. Ben Lloyd
Business Mortgages vs. Rental Costs: The True Costs
It’s an age old question, is it cheaper to buy or rent? It doesn’t matter whether you’re a small business or an international corporation, this question will always make you stop and do some serious calculations.
To help you make a faster, well-informed decision we’ve put together this easy comparison between securing a business mortgage and renting your premises.
Pros of Buying Commercial Property
Let’s get straight to the meat of it: by buying a commercial property you can benefit by:
• Increasing your business’s equity
• Having access to fixed rate mortgages, giving you financial security for a certain amount of time
• You’re not subject to the landlord’s price hikes or leasing rules
• As the property rises in value, you gain greater asset value making it a clever investment
• You have complete control with what you do with the building
• The interest portion of commercial mortgage repayments is tax-deductible
• Depending on location, business mortgage repayments may be lower than rent payments
All of these reasons are very good reasons to buy, but how do they compare against renting? Let’s explore:
Pros of Renting Business Premises
Many businesses rent for years with almost zero thought about buying the building they are in. Some of the reasons they stay in leased properties are:
• Very easy to move if your business needs to relocate or expand
• No need for the business to have to shift funds around to create a deposit
• Your business is not responsible for maintenance and repair of the property
• Fluctuations in the property prices are unlikely to affect the company
This clearly shows that there are specific benefits to each way in which property is being acquired. Based on these brief lists, you can gain a good understanding of whether or not your business would benefit more from renting or buying.
To gain a more level understanding, the negatives of each type are as follows:
What’s holding you back?
While buying does carry many benefits, it isn’t right for every business. Some of the aspects that prevent businesses from buying include:
• You need to be able to come up with a large deposit, usually 20-40% which can be extremely hard
• If the property decreases in value the value of your assets will also decrease
• Any maintenance and repairs will have to be paid for by you
• You are fixed to a set location, making it difficult to move or expand
• On variable rate mortgages your payments are dependent on interest rates
• If you don’t use a commercial mortgage broker you may not get the best rates
Cons of Renting
Some of the disadvantages of renting are things such as:
• Paying rent doesn’t help to build up the company’s equity
• Landlords are free to increase the rent by any amount with short notice which can cause financial strain
• If the value of the property increases there will be no benefit to you
• You have to follow all the rules that the landlord sets with the property
• A lease is not always guaranteed to be renewed, which can leave you at a loose end for a premises.
What’s best for you? It is impossible to gather all the information you need to know based on the pros and cons of buying or renting.
Every business is different, however you can gain a good understanding on what would be most suitable for you.Talking to a commercial mortgage broker can give you a good understanding of what kind of rates you would be likely to receive, and how much the whole purchase is likely to cost.
If you are currently renting then this can give you the best idea of what kind of savings, if any, you’re likely to make on an annual basis.
To get a tailored quote give us a call on 02920 766 565.
Article By Ben Lloyd
July 21st, 2014
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben