Tired of paying rent for the premises where your small business is based and wondering whether you’d be better off stumping up the funds to buy your own own piece of commercial real estate?
There’s lots to like about becoming your own landlord, according to Adelaide financial advisor Mark Draper who purchased a building to house his own small business, Gem Capital, five years ago.
For starters, you’ll have total control over the property, its fixtures and maintenance – no more nagging the landlord to have the air conditioner serviced or the bathroom sink unblocked.
Certainty of address is another plus for those who hope to be in business for the long haul.
“If renting, ultimately you may be at the mercy of the landlord and if they want to move you on they can jack the rent up to unsustainable levels,” Draper says. “Moving is costly and it also implies business instability.”
On the downside, loan repayments may sap your cash flow, if they’re significantly higher than the rent you were paying previously.
The type of property you require may not necessarily be a great investment in its own right, commercial property values can be volatile and selling could be a lengthy process, should your circumstances change.
If renting, ultimately you may be at the mercy of the landlord and if they want to move you on they can jack the rent up to unsustainable levels.
So what’s the secret to buying smartly, should it be looking like a good way to jump?
Start by waiting until you’re in a position of financial strength, not wondering whether there’s enough in the kitty to meet next month’s superannuation guarantee contributions or pay for the staff Christmas party.
“Make sure you’re well capitalised and use sensible assumptions when preparing your cash flow forecasts,” Draper says.
Researching the market thoroughly should help ensure you don’t pay over the odds for a place for your small business to call home.
Remember to factor in additional costs such as strata management fees, which are typically the responsibility of a landlord or owner, when crunching the numbers.
“Obtain guidance from property specialists about rents for the area and use them to help calculate an appropriate purchase price based on yield,” Draper advises.
“Treat this as an investment, don’t fall in love with it – the numbers must add up by themselves.”
Whether to buy it in your own name, in the name of your business, or through a self managed super fund or other separate business entity? It’s a complex area and taking professional advice before you commit to a contract is likely to be the smartest money you spend.
Sylvia Pennington is a Brisbane-based freelance journalist who writes about small business, information technology and personal finance.