Why Buy Commercial Property

Owning commercial property can represent a wealth of investment opportunities, tax benefits and security, but like any investment there are associated risk too.

Advantages

Full Ownership

Unlike more conventional investment methods, a commercial mortgage will provide the means to invest in the business premises with relinquishing any of the business. You retain full ownership of the business unlike raising funds by selling shares. Whilst the lender does have legal claim to the property until the loan is repaid the business remains unaffected.

Tax Benefit

The interest payable on a commercial mortgage is tax deductible as an expense made from pre-tax money, unlike a conventional loan.

Access to capital

Remortgaging the property can release valuable capital into the business, this cash injection can be very useful to businesses looking to expand or boost cash-flow.

Lowest Rate Borrowing

A commercial mortgage will usually represent the lowest rate of interest when it comes to borrowing money and will tend to be more flexible than a loan or other agreement. In most cases the repayments may even be less than the rent.

Tenure Security

You will have more control over the business premises, eliminating the risk of rent reviews or not offering a lease renewal when the existing contract expires.

Appreciation

Property can usually be considered a reasonably safe investment and by owning the premises the business will reap the rewards should the commercial property increase in value. This will strengthen the case for remortgaging against and increase the company assets.

Sublet Opportunities

Given the length of the average commercial mortgage term, a contingency plan is essential. The opportunity to sublet can yield much needed cash in to the business should the business fall on hard times or simply no longer require as much space. Owning the property usually allows the business to sublet areas of the plot to another business although it is not uncommon for lenders to impose restrictions that prevent subletting, consult the lenders lending agreement and seek further advice from a specialist solicitor.

Pension Plans

Commercial property can purchased as a Self Invested Personal Pension (SIPP) providing a tax efficient means of securing your business premises.

Disadvantages

Lender has legal right

Defaulting on a repayment could result in losing your business although similar consequences are not uncommon in lease agreements.

Relocating

There could be several reasons to vacate the property, should you find yourself relocating the business or having to scale back a failed expansion it will usually be more difficult to sell the property than to terminate the lease.

Deposit

The commercial mortgage lender will require a deposit and in order to get the most competitive rates it is likely to be fairly substantial, if the business has the capital the cash flow will likely suffer and if it doesn't it will mean risking your own home or alternative assets as collateral.

Responsibilities

As the property owner you will be responsible for the upkeep and maintenance of the property, whereas the landlord would usually shoulder responsibility within a rental agreement.