Deciding whether to rent or buy a commercial property for your business is a big question with many dependencies such as the type of business you run, whether or not you are likely to outgrow a premises or a location, as well as the affordability of choosing one or the other.  

Here are some of the pros and cons to consider when deciding whether or not to purchase a commercial property in Australia. 

Pros 

Owning your own commercial property gives you a lot of freedom and control over the environment you do business in. It provides the stability of a fixed location and you can customise the layout and design of the space to suit your needs, and make any changes to help increase efficiency, customer flow or branding. In addition, ownership allows you to build equity in the property as it appreciates in value over time. 

In addition to possible capital gains over time, ownership can result in tax savings, as commercial property owners may deduct mortgage interest payments and other expenses associated with the property from their taxable income. This is subject to professional guidance and advice. 

With your costs relatively fixed, you will be able to plan and budget accordingly, and you are not at risk of being asked to vacate the property (which can have dire consequences on a business). You may also choose to sublease part, or all, of the property as your needs change. 

Cons 

A major downside to owning a commercial property is the upfront costs associated with purchase. Not only do you need to pay for the property itself, but you’ll also need to factor in additional conveyancing expenses and fit-out costs (though the fit-out costs may also apply to a rented space). 

Further costs include maintenance and repairs and all relevant insurances, which will be your responsibility. 

Borrowing for commercial property 

For business owners seeking to buy a commercial property, your options for borrowing will typically require evidence of income such as tax returns or financials, so it’s important to ensure your books are up to date. This includes all assets held within the business, as these are taken into account by lenders. It is also important to demonstrate that you have sufficient revenue to service the loan as well as meet any other financial obligations you may have. 

In addition, lenders may need assurance that if your business closes or relocates, the property has the potential to generate rental income to cover repayments if necessary. This means having a good understanding of the local market and being able to show evidence of likely rental demand. 

Furthermore, loan to value ratios (LVRs) for commercial property differ from lender to lender and can also be impacted by the location, use, value, and marketability of the property, amongst other things. Where additional security is provided, such as other property or business assets, many lenders will increase these LVRs, which can greatly reduce cash contribution requirements. A broker who specialises in loans for commercial property will be aware of the LVR, and other, requirements of various lenders, and can help you make a decision based on your particular circumstances. They will help you understand the full range of options available and streamline your application process so you can save valuable time.  

Ultimately, whether or not buying your own commercial property in Australia is a good option will depend on your individual circumstances and financial goals. Consider all of the pros and cons carefully so you can make an informed decision that works for you and your business. 

Buying a commercial property in Australia can be a substantial asset to your business but there are risks, so seeking advice for your particular circumstances is advisable. With thorough research and professional advice, buying a commercial property can be a rewarding experience and provide many benefits to your business for years to come.