Rent or Buy? The Commercial Property Conundrum
Category Advice
As a business owner, the question of whether to buy or rent a property for your commercial or industrial needs is one that requires careful thought. You'll need to weigh the pros and cons of each, while also considering which is best suited for your long-term plans.
Benefits of Renting
On the one end of the spectrum, renting is ideal for those who require flexibility and good cash flow. The flexibility of renting means that when the time comes to downsize, upsize or relocate into another area, you can easily change business premises (provided the lease is over) without the worry of selling the property before relocating. What's more attractive is that renting also offers a certain level of stability as most commercial tenants sign a lease agreement for a fixed period of at least five years.
Smaller or newer businesses with a limited amount of cash flow often opt for a rental property as the deposit is much more affordable than a deposit required for buying a property. A deposit on a rental property is based on the monthly rental costs, and this could amount to one or several month's rent. While, if you're buying a property, a deposit will be between 30% - 40% of the purchase price. By saving on the deposit, businesses choosing to rent will have a more substantial cash flow to invest in important assets such as office or warehouse equipment.
Renting also frees up plenty of time for businesses as much of the maintenance is taken care of by the landlord whose duty it is to ensure that the exterior and common areas of the property are kept clean and well-maintained. As the tenant, your only responsibility would be to maintain the interior of the space that you are occupying.
Benefits of Buying
Many business owners who choose to purchase a property do so because they are rapidly expanding and they require a large commercial/industrial space. In this case, monthly rent can amount to R1mil or more, resulting in many owners choosing to invest in their own properties. Building a property portfolio instead of paying rent to a landlord has numerous advantages. For starters, instead of paying a monthly rental fee which will always go up each year, you will be paying towards your bond instalments each month. Unlike rent payments, bond instalments are not guaranteed to go up every year. They can also go down or remain the same depending on interest rate movements. After your instalments are paid off (typically a 10 year period) you will have an asset/s in your name that has increased in value.
The stability that comes with owning a property provides incredible peace of mind, but more than this, it also makes good business sense. Legally, buying a commercial or industrial property allows owners the option of establishing two separate companies - the first is the original company (parent) that runs daily operations and the second is a "prop co" (subsidiary) that owns the property. The prop co is created by the parent and it owns all of the real estate and related debt, providing the parent with advantages relating to financing, credit rating issues and tax breaks.
Deciding on whether to rent or buy a property is dependent on the type of business model you have and analysing which option suits your business best. Regardless of the option you choose, 3CUBE Property Solutions is here to help you find the ideal commercial or industrial space to rent or buy in Gauteng. Speak to our helpful agents today to find out more.
Author: 3CUBE Property Solutions
