Buying a property for your business is a big decision to make, so do your homework before you commit to anything. For example, have you ruled out the possibly of leasing your workspace? This is a good option if you’re not in the financial position to invest in a property. Perhaps the cash is better spent on product development or expansion.
What if your business outgrows the current premises and has to move? Also, your rent will stay the same (for that year), while the property market and interest rates fluctuate. Costs associated with maintaining the property is also left up to the landlord.
If you have the resources and would rather pay your own bond than renting from someone else, here are some of the most important issues to explore. Get out some pen and paper and start making notes.
The up side
Many experts agree that owning property is always a good investment. Owning your business premises definitely has some advantages:
- With each bond repayment, you’re building on the equity of your own asset rather than paying money to a landlord
- If you’ve bought under the right circumstances, the value of your property will grow over the years
- Buying a property offers various tax advantages, both as the property owner and as a landlord
- Much like buying a house, you can decide how best to use your space – the interior design, renovating or remodelling to suit your needs, plan for maintenance, etc.
- In the same vein, you don’t have to comply with the rules of a difficult landlord, rent increases and complicated lease agreements
- You can lease any unused space to other small business, which will help with maintenance costs and loan repayments
Where is the money coming from?
Buying a commercial property is a huge commitment financially, so make sure you have the means to ensure the investment is profitable for you and your business.
- Work out what you’ll pay on a bond vs what you’ll pay in rent. Factor in the costs of maintaining the property, taxes, insurances, any rental income and any other costs
- After you’ve covered all these costs, are you left with any disposable income? You need to have reserves for maintaining the premises on a monthly basis and these costs can add up
- Shop around for good loan terms, interest rates and so on. Get some expert advice in this area to make sure you’re getting the best value for your money
The right location
‘Shopping’ for your business premises is much like buying a home. You will look for a safe area, easy to access, not too remote, convenience, the size and condition of the actual physical structure, etc. You must also consider:
- Density of consumers in the area and their income levels
- Proximity of competitors; is there place for one more?
- Is it clearly visible?
- Easy access for customers, such as on a main road or near a highway
- How much renovation and refurbishments need to be done and what will this cost?
- Is their potential for further development in the area and how will that affect you?
- Availability of parking for customers (depending on the kind of business)
Looking at the big picture
Ask yourself what your long-term goals for your business are and anything that may happen in the future. For example:
- How much space do you need – now and in the long run? Will you consider leasing out some of the empty space until your business grows?
- If your business is growing quickly, buying a premises may not be a good idea for now
- What happens when you want to close or sell your business? Is the property in an area popular with investors? If you do need to sell quickly, how long will it take to sell?
Call in the experts
The commercial property market is a complicated one, so don’t try to do this without getting advice from an expert in this field.
- Use a knowledgeable and reputable commercial realtor to find your property. This will save you a lot of time and hassle
- Give the agent a clear brief of what you are looking for, the size and type of property, the location, neighbouring businesses, plans for growth and so on, so he/she is able to provide you with a short-list of appropriate properties
- Do your sums before-hand, so know how much you can afford and whether you want a premises ready to move into, or if you’re prepared to do some renovations or upgrades to suit your needs
- When you’ve found the right place, only approach lenders that specialise in commercial property loans and have a good track record. If you can, find out whether you can get a pre-approved loan so you know exactly what you can afford
- Employ a financial advisor who deals with small businesses to help you structure your current and future finances so you’re 100% sure you can afford the costs of buying and maintaining your property, while still having a steady cash flow for running the business
- Use your own commercial property lawyer to explain the sale terms to you and draw up contracts and paperwork related to the sale
This article first appeared on the SME Toolkit South Africa – southafrica.smetoolkit.org