Should Small Business Owners Rent or Buy Their Commercial Space?
In a press release from CDC Loan Experts, three strong reasons were put forward for business owners owning their storefronts. Firstly, purchasing a piece of commercial real estate is a long term investment that can be turned around for profit later, rented out, or kept as a business location without the obligation of rent. Secondary to this is the fact that payments for rent may be contingent on market prices and therefore subject to fluctuation. Businesses that would be forced to move in the event of a rent increase will pay the same payment for the property they are purchasing, making buying a good strategy for those looking to stay in a location for the long term. Lastly, a purchase payment may be less expensive than rent would be in the first place, with the bonus of eventually owning the piece of property.
Should you invest in purchasing your location? If business owners are planing on staying in their physical location for the next ten or twenty years, then it makes more sense to buy than it does to keep paying rent. On the other hand, if a business may consider moving to a larger location, or the market in an area is quickly changing, it can be more risky to purchase their space. As with any large business investment, performing market research to get a sense of incoming cash flow is an essential step to avoid a scenario where expectations are far removed from reality. Performing market research is also important for identifying market gaps and ensuring that your business is taking advantage of all sales opportunities within its market. Once a building is fully paid off, business owners can do what they want with it, as well as rent it themselves to create supplementary income should they decide to move to an internet based business model.
Photo Credit to Salva Barbera on Flickr