The Pros and Cons of Buying Commercial Property

It is tempting to buy a property for your business.  Owning property is always a good investment and with each bond repayment you are increasing your asset rather than paying off your landlord’s bond. Over a decade or two of ownership, occupancy costs for the business will approach zero assuming that the bond would’ve been paid off.  Various tax advantages also apply.

You get to decide on the best use of space without having to pander to a difficult landlord or deal with annual rent increases.  Any unused space can be leased out to other small business, reducing your monthly costs and adding an income.  However, being a landlord has its own costs – the hassle of managing leases, collecting rent, replacing tenancies etc. These are fairly straightforward tasks when handled by a dedicated property management firm, but tricky to extract maximum value when it is not your core business.

It’s a big decision to make, so ensure that you have sufficient cash-flow for building maintenance, rates and taxes and insurance, as well as a cash-flow to run your business. Typically, you will have a 70:30 loan to equity percentage. 5^th Avenue Properties will give you expert advice in order to get the best loan terms.  Regardless of which bank you go with, the lending fundamentals are the same: what rental income will the property generate? Is this income market related in terms of rental? Is this affordable to the purchaser/tenant? Is the purchase price market related?  Allow us to assess these risks for you.

We will help ensure that the space will accommodate growth and is also easily saleable/rentable should you need to re-locate. A new or growing business may experience unexpected needs in the future.  If your business continues growing, your owned premises may become inadequate, forcing a sale of the property which can be difficult, in particular if you’ve customized it in a way that narrows its appeal to the general market.

It is critical to purchase under expert advice. A reputable commercial broker, such as 5th Avenue, will provide you with a short list of appropriate properties. 5^th Avenue Properties have an in depth knowledge and are able to provide critical information including recent transactions in the area, vacancy levels, demand, rentals and market prices. This information will assist in determining the right purchase price.  We are also able to provide property evaluations, negotiate lease terms with potential tenancies and provide planning and due diligence solutions.

However, bear in mind that buying commercial property will initially cost far more upfront.  There are the building transfer, appraisal and on–going maintenance costs along with a typical substantial down payment (+/- 30% of the value if the building) and possible property improvement costs.

Make an educated decision about whether to buy or lease a property for your business with the assistance of 5^th Avenue Properties

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