Should you buy or lease premises?
Deciding to buy or lease premises is an individual thing because it depends on the size of your business, the longevity and profitability of your business, the size, location and price of the premises.
It can be expensive to buy a commercial property – in the millions. So, it depends on what your business can afford.
Mark Iriks, managing director of ‘easigroup’ says small businesses can often find affordable premises with flexible terms under a leasing arrangement.
Iriks, who has built his leasing business over several decades on the principle of flexible commerce, says you can have beneficial outcomes for everyone if you think outside the box in regard the negotiations and contract for leasing.
His head office building has become what he describes as a “thriving hub of diversity” after his company started offering flexible leasing arrangements in parts of the building to allow small businesses to move in and coexist.
“We have sectioned off parts of the building and offered lessors free or subsidised rent in return for shares and profits,” he says.
“People often don’t realise this, but you can go into any arrangement with anyone you like, and it’s up to you and the owner of the property to decide the arrangement”.
Iriks says another option could be to use your Self-Managed Super Fund (SMSF) to buy premises and lease that to your business.
“There are rules and requirements around this, and it is worth talking to your accountant about whether this is a viable option. Sometimes the administrative costs of an SMSF can make this option less appealing,” he says.
Pros of buying a business premises
- The value of the property may increase over the number of years that you own it and your company has an asset to sell or borrow against.
- You don’t have to worry about anyone else increasing the rent or making decisions that affect you regarding the building or your workspace.
- You can decorate/fit it out as you like.
- Over time the ongoing costs are generally lower.
Cons of buying business premises
- High amount of cash needed upfront for purchase. This could take a long time for your business to recoup.
- You may outgrow the premises if your business grows and needs more space for employees or inventory.
- Any damage is your responsibility to pay for and fix.
Pros of leasing premises for your business
- The lease money is entirely tax deductible.
- You may be able to more easily find a location that better suits your business and clientele. A prime location can be costly to buy.
- You can locate to larger or smaller premises more quickly and efficiently to suit your business needs.
Cons of leasing premises for your business
- Any changes you make to the premises will need to go through a landlord.
- You need to outlay time and money to fitting out the building as you want, and you still don’t own it at the end.
- The rent can increase at any time.