Buying business premises and commercial property

Buying Business Premises & Commercial Property – Guide for Business Owners

If you are a business owner and you are considering buying business premises or investing in commercial property as an owner occupier then our guide to buying business premises and commercial property is certainly a good starting point.

If you have a successful business and want to move to larger premises, or if you have a new start-up venture and want to select a building that will have the potential to accommodate you and several staff, you have to take time to research the best locations, property prices and all the advantages and disadvantages of buying business premises versus renting. The reason for this? Buying business premises is notoriously difficult to get right.

Buying Business Premises versus Renting

Most of the time businesses will choose to rent rather than buying business premises as it often proves an easier path to take for many.

For example, commercial property mortgages are usually taken over a shorter period of time so in some cases monthly repayments can work out to be higher than regular rental payments, placing an extra burden on cash flow… this is just one example.

Others include the stress on capital availability within the business, opportunity costs – what else could you do with the cash used to pay the mortgage – the prospect of negative equity if property prices fall, reduced flexibility and the long term commitment to just one building.

What about Opportunity Costs for the Business?

Going into further detail, buying business premises as opposed to renting means a lot of your capital is untouchable, tied up so to speak.

This capital, if renting could be used for other things, and as a smart business owner it could help you if a commercial opportunity were to present itself, or it could act as a financial safety net when times get tough.

What about Negative Equity?

Negative equity in commercial property is also a big concern for many business owners.

If your business starts to struggle and you cannot afford to make the monthly mortgage repayments you may be forced to sell your property at a knock-down price – while this might free up some much needed cash it is unlikely to help your situation entirely.

Similarly, if you cannot afford the monthly mortgage repayments your business premises may be at risk of repossession – this could be disastrous and result in the entire business going under.

The Risks of Buying

This guide is not about putting business owners off buying their own premises, as you will soon see there are many advantages to buying business premises, purchasing your own building or land.

It is however, vitally important that as a business owner you understand the risks involved so you can weigh up whether or not the property purchase route is for you, your staff, and more importantly your business and its development and future growth.

The Benefits of Owning Business Premises

As well as the risks however, before you make any property purchase or leasing decisions you should also look at the benefits of buying business premises both to you personally and your business – as there are many.

  • Security of Tenure

    One of the biggest advantages that springs to mind when you are an owner occupier is the level of security that comes with purchasing your own business premises.

    Just like the housing market, if you are only renting a landlord can potentially require you to leave at any time irrespective of whether it is inconvenient or, to the detriment of your business.

    There are legal safeguards that do protect business tenants’ and their rights but it is preferable that such situations are avoided as they can be extremely disruptive and costly.

    However, this would never happen if the business premises were bought and owned as it would be entirely up to you when and how you used the property (subject to any planning restrictions).

  • Freedom from Landlords Control

    There is also an element of freedom as when the building starts to look in a state of disrepair, you will be able to make improvements and changes of your own accord, rather than be told what to do and when to do it by the landlord.

  • Renting or Sub-Letting your Property to another Business

    Many business owners think that renting represents a lower risk because if the business starts to struggle, they can simply move out of the building and cut their costs.

    In the same scenario however, if your business starts to struggle financially and you own your own premises, you can simply relocate to smaller premises and rent your existing building to another business.

    There is also the option of sub-letting part or parts of your property to other tenants.

    Sub-letting allows you to remain where you are but helps to bring in additional cash that can be used to help your business directly.

Can I Afford to Buy?

When considering whether or not to rent or buy business premises for owner occupation the biggest and most important factor to consider is cost both in the short term and the long term.

There is no denying that renting is the easier solution, there is no big up-front capital injection required, and many other issues will be down to the landlord leaving you to get on with simply growing the business.

Owning your own property though gives you freedom and the power to develop your business and your own space as you see fit.

Costs & Professional Fees when Buying Business Premises

Bear in mind that if you opt to go down the property acquisition route there will be additional costs… you should budget for fitting out, relocation costs, paying solicitors to deal with the sale, professional surveys and property taxes in the form of stamp duty.

Calculate your Ongoing Costs

The biggest financial considerations you have to take in to account when buying business premises are the on-going loan re-payments that will be required to finance your commercial mortgage.

It is this loan repayment that you should take the most notice of as it is this that will prove whether or not you can afford to buy outright in the first place.

Additionally, council tax in the form of business rates, mortgage repayments, electricity and water bills are just the tip of the iceberg when it comes to your monthly outgoings so you should budget carefully and make calculations to see if you will be able to make it pay.

Searching for Commercial Property

If from your calculations you are confident that you can afford to buy business premises rather than rent, you should then start the search for your ideal commercial property, and subsequently consider submitting bids for those properties you’ve identified as being best suited to your needs.

There is no time to waste and in the current financial climate, you’d be surprised at the bargain commercial properties you can pick up.

Get in touch with local and national commercial property agents and surveyors, approach local business groups, drive round areas that you feel are suitable and look for property for sale signs… additionally, you can conduct your own research using the local and national press, specialist publications and the Internet.

Look for business premises that are well within your budget, so that should you have to carry out alterations, extend or undertake fit-out works to the building, you will have still have sufficient funds to play with.

What about Property Inspections & Building Surveys?

Once you have found your ideal property and you enter into negotiations with the property owner you should ideally get a full building survey conducted to make sure everything is structurally sound and that there will be no unexpected costs that pop-up out of the blue.

If you plan to extend or carry-out substantial alterations, please always ensure you get both building regulations consent and planning permission for any changes you plan to make.

Property Investment Solutions

As a leading independent property and land investment specialists Investment Property Partners offer expert advice and support to clients across our specialist areas of expertise helping them to achieve their investment objectives.

If you are a business owner or property investor seeking to buy business premises, commercial property, residential buy to let or overseas property investments please contact us today to discuss how Investment Property Partners can help you.

Further reading…

More information about commercial property and business premises… here →