Why it’s better to buy than to rent business premises

Buying commercial property is one of the biggest and potentially most rewarding investment decisions that a business owner can make.

However, many business owners prefer to operate from rented premises because of the assumption that it is cheaper and less risky to do so.

According to Attie Anderson, FNB head of business lending, even though running a business from rented premises seems like an effective cost-saving, the reality is that you are paying towards someone else’s investment or bond.

“More important, renting exposes your business to some level of uncertainly because when the lease agreement expires, your fate partly depends on the property owners. If they decide to sell or stop leasing, you may need to move to new premises at a significant cost.”

Anderson says that if you look at the business case for buying commercial property, there are more advantages for business owners who decide to undertake such an investment. He outlines the following benefits:

You create business certainty, and this is essential to business success. Owning the premises from which your business operates is one way for a business owner to create such certainty. The same cannot be said about a business that operates from rented premises because it usually needs cash reserves to potentially fund the cost of moving to new premises. Businesses that rent are also exposed to rental escalations which will affect cash flow.

Business owners need to remember that the principle of paying off someone else’s bond does not only apply to residential rentals – it applies equally to commercial property rentals. Buying commercial property is a sound investment strategy that will help create sustainability.

You can tailor the property to suit your business needs, whereas operating from rented premises is often very restrictive as the owner of the premises will have limitations on what business can and cannot do. This is different for owner-occupied premises because if there is more space than required, you can always lease to non-competing businesses to supplement income.

Commercial property can provide annuity income during retirement. One of the major pursuits in life is being able to retire with sufficient income. A commercial property investment is one of the effective ways to achieve such a goal, because if you retire, the property will ensure annuity income, in addition to the capital growth of the asset.

“I encounter a lot of business owners who are interested in buying commercial property from which they can operate a business. However, many are under the impression that this is a complex process. In reality, the process is not drastically different to that of acquiring residential property, except that it will require business credentials to support the business case, as opposed to personal information in the case of a residential acquisition,” says Anderson.

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