Should You Buy Or Rent Your Business Space?
To all our entrepreneurs, we know running a business isn't easy and it's amazing to step out of your comfort zone to make an impact this way. With the volatility in the market, the question of renting your commercial space instead of buying it always comes to mind. Both sides of the coin have their own merits but it's always a good idea to have a clear understanding of the advantages and disadvantages of renting or buying your business space in Singapore. In the case where your business is growing and there's a lot of unwanted financial strains coming from your landlord, it might be a sign for you to consider buying your own commercial property singapore for the long term. And if you're still unsure, we'll break down some of the pointers you will need to consider when making your heavy decision in this article.
Advantages Of Buying Your Business Space
1. Removing Potential Risks of A Rental Increase
When your business starts growing and cash flows start coming in, landlords often want you to share the happiness by giving them a larger portion of income in the form of a rental increase. This is actually a norm in shopping malls as retail shops will have to pay a fixed rent accompanied by an additional rent based on a fraction of their sales. Even if you're not looking at a shopping center, landlords can also spy on your businesses and take advantage of you. It will be to their advantage as they understand that relocation on your end will be unfavorable when you're finally gaining some traction and having a larger customer base.
2. You Won't Have To Fear Being Forced To Move Out
Imagine renting a place only to have your landlord telling you that they want you out and it is unnegotiable. This may be a far stretch but it isn't uncommon for landlords to be enticed by other tenants that have a personal connection to them or are simply offering a higher rent. While your landlord may not necessarily tell you straight to move out, they might raise the rental prices to extraordinary levels to give you the hint.
3. You Have An Asset To Your Name!
While this statement might be arguable as you will still need to pay off your bank loan, your business space will no longer be just an overhead cost in the near future! When you're renting your business space, all the rental fees that you are paying are just costs and will be lost to your landlord. In contrast, having a property to your name will allow you to rent it out in the case you choose to close your business or provide you with opportunities to make a bit of profit if you choose to resell the property. Nevertheless, it's also important to note what kind of properties might have a higher resale or rental value. Commercial properties have higher rental profits as compared to residential buildings that can reach about three to five percent per year. Industrial properties with short leases might probably cost you a net loss if you choose to resell it.
4. Freedom To Customise Your Space
With the many saturated markets, most brands are finding their unique ways to stand out from the crowd. Owning your own space will provide you with the freedom to do renovations to the interiors of the space or having crazy ideas like adding a swing that goes from one end of the room to the other. You'll not only have a chance to be more popular and attract businesses with your creative ideas but you won't have trouble with your landlords setting too many rules on what you can do with your space. When you own the space, you can perfectly tailor it to your brand and is extra important if your brand is supposed to showcase its fun or creative side.
Disadvantages of Buying Your Business Space
1. High Upfront Costs
The maximum Loan-To-Value Ratio (LTV) for commercial properties at 80 percent is uncommon to obtain and banks can actually only offer you a 60 percent LTV. This requires you to pay a much larger down payment as you might expect. Additionally, you will also have to pay for other fees such as your seven percent of GST for purchasing a commercial building, stamp duty, legal fees, and others.
When you also count in all the repayments that you'll be doing every month, it's a lot of money that could have been spent elsewhere such as business expansions or larger campaign launch.
2. Lack Of Liquid Assets
There are relatively fewer ways to get cash out of your property besides using it as a form of collateral. As compared to residential properties, commercial ones usually take a longer period of time to sell. Buyers also find it harder to secure bank loans for it, making it a little less favorable for investments. Think of your operating costs before you invest in buying a property as your day to day costs have a more immediate impact on your business.
3. Inflexibility
If you're looking at working spaces such as offices, your manpower count might differ as you grow your business. Choosing to buy a small commercial space might be inflexible when you need to expand, and bigger commercial spaces might not be the best decision too as we can never accurately predict our future growth due to the volatility of the business markets. At the end of the day, the extra office space that you have bought over might just be a waste of money if left empty unless there's the option of renting it out at a comfortable price.
Evaluating Your Decision
There's no definite right decision for every business, and it's up to your risk appetite and business model to decide whether to buy or rent your business space. If you are just starting out and have no clue on how much manpower you require or simply don't have that large a sum to purchase a space, try renting a space first.
