Advice and Opinion

Why it is better to buy than rent business premises

Purchasing commercial property is one of the biggest and potentially most rewarding investment decisions that a business owner can make. However, many business owners predominantly prefer to operate from rented premises because of the assumption that it is cheaper and less risky to do so.

According to Attie Anderson, FNB Head of Business Lending, “Even though running a business from rented premises seems like an effective cost-saving, the reality is that you are paying towards someone else’s investment or bond. More importantly, renting exposes your business to some level of uncertainly because when the lease agreement expires, your fate partly depends on the property owner. Should they decide to sell or stop leasing, you may need to relocate to new premises at a significant cost.”

Anderson says that if you look at the business case for buying commercial property, there are more advantages for business owners who decide to undertake such an investment. He outlines the following benefits:

You create business certainty
· Certainty is essential to business success. Owning the premises from which your business operates is one way for a business owner to create such certainty. The same cannot be said about a business that operates from rented premises because they usually need cash reserves to potentially fund the cost of relocating to new premises and they are exposed to rental escalations which will impact the business’ cash flow.

Paying towards own investment
· Business owners need to remember that the principle of paying off someone else’s bond does not only apply to residential rentals; it equally applies to commercial property rentals. Buying commercial property is a sound investment strategy which will assist in creating sustainability.

You can tailor the property to suit your business needs
· Operating from rented premises is often very restrictive as the owner of the premises will have limitations on what business can and cannot do. This is different for owner-occupied premises because if there is more space than currently required, you can always lease to non-competing businesses to supplement income.
Commercial property can provide annuity income during retirement
· One of the major pursuits in life is being able to retire with sufficient income. A commercial property investment is one of the effective ways to achieve such a goal, because should you retire, the property will ensure annuity income, in addition to the capital growth of the asset.

“I encounter a lot of business owners who are interested in buying commercial property from which they can operate a business; however, many are under the impression that this is a complex process. In reality, the process is not drastically different to that of acquiring residential property, except that it will require business credentials to support the business case, as opposed to personal information in the case of a residential acquisition,” concludes Anderson.