Weighing up whether to buy a place to operate your business from or keep renting?
Here are some helpful pros and cons:
Buying’s great but it’s heavy upfront:
Regular rent payments may be ancient history when you buy, but you’ll need to come up with a lot more lump sum dollars.
You’ll need a decent-sized deposit before borrowing which can eat into cash flow.
Having a mortgage over the property can be a financial tie.
Renting, on the other hand, can free up those dollars which may find themselves to be more useful as cash flow for the day to day running of your business.
Increase in Value:
Buying has its pros because in almost every case, the value of the premises will increase over the years.
Land values generally will go up which will then benefit you as owner.
If you’re a renter, then the only effect rising land values will have on you may be a rise in the rent you’ll need to pay.
Renting can test the Location first:
Renting business premises is a better way of “testing the water” about operating in a new area.
You may not know how successful the location is going to be, so renting shorter term rather than locking into a more permanent buying arrangement is the best bet.
Renting gives Flexibility and Mobility:
Renting allows you to be more agile with your business over time.
It may happen that the current premises no longer suits your changing needs.
You may want more or less space. You may need to move closer to where the market is, to where there’s better distribution points, or a better supply chain.
Renting allows you to pull up stumps more easily than buying, but always, it depends on the terms and conditions of your lease.
Owning gives more Control:
Easy to make changes to the premises if you own it, but not so easy if you rent.
Making renovations or additions gives you control as owner, pending council planning laws of course.
There’ll be a wide scope within your grasp to make improvements and changes to the property.
That can definitely advantage your business.
Renting will involve gaining permission from the landlord to make any changes. In many cases, that can be tricky.
Owning offers Tax Benefits:
Buying can save you tax in that you can make annual depreciation deductions.
Depending on several factors which the ATO outlines, such as how long you have been in business or how profitable your business has been, your tax bill may decrease compared with a bill if you’re renting.
Owning offers Super Fund Benefits:
So many business owners have self-managed super funds.
Buying your own premises can be a great way of contributing to your own fund.
You can use the money you have in your SMSF, or borrow extra funds through the SMSF, to buy premises to be used by a business that you own or control.
You still have to pay rent to your own fund but long term, that’s still a big plus!