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Do You Own Or Rent Business Premises?

When your business grows, you’re more likely to be confronted with the important decision of leasing or owning the premises on which it operates.

Attie Anderson, Head of Commercial Property Finance at FNB, says being in a strong financial position to invest in commercial property should be every business owners’ aspiration. However, not every business model supports owning commercial property. For some businesses, it may be better to lease.

If you’re considering this type of investment, Anderson encourages you to seek advice from your bank or financial advisor to familiarise yourself with the pros and cons of owning commercial property.

Pros  

  1. Owning commercial property that increases in value can be a great investment for entrepreneurs that want to diversify or sell in the future.
  2. Operating a business from your own premises gives you peace of mind knowing that you don’t have to worry about lease renewals and hefty rental increases.
  3. Should the business grow and require additional space, there is an option to renovate or extend the building.
  4. Financing commercial property eventually becomes less expensive in the long term.
  5. You have the option to refinance the property, should you require additional capital to grow the business.
  6. There is an option to sublet a portion of the building and earn additional revenue.

Cons

  1. Investing in commercial property can tie up the cash flow of a business, due to poor financial planning.
  2. Operating from a fixed location can be a disadvantage should the business be required to relocate.
  3. Selling commercial property can be challenging during tough economic conditions.
  4. The business is directly responsible for the management and maintenance of the building.
  5. If the business does not perform well, this may potentially impact its ability to honour financial commitments on the building.
  6. Managing tenants and building risks can be cumbersome, requiring business owners to seek professional assistance.
  7. The overall value of the investment will decrease should the property deteriorate or depreciate.

Source: FNB. Image: Pixabay

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