If you are asking whether the current market situation has created an opportunity for you to buy the commercial property where you operate your business, then you are not alone. Since March 2020, most business owners and entrepreneurs are asking the same question. Entrepreneurs see a potential opportunity in the commercial real estate market, as almost 40% of all Canadians have been working from home, and some companies have chosen to give up their office space. This has the potential to depress the commercial real estate market and create a buying opportunity. This represents a potential win for entrepreneurs who are well-positioned to buy their location.
This is not a simple decision for many entrepreneurs to choose between buying their place of business or continuing to lease. As you know there are pros and cons to both options, and the decision requires careful analysis and planning to meet short- and long-term objectives.
Here are some tips to help you better understand what you are getting into with each option. Having a better understanding of both options will help you navigate this delicate decision to your business’s best advantage.
When should I buy?
1. Criticality of the Location:
If the current leased location is important to the long-term success of your business, then you should consider buying. A great location that is critical to your business growth is hard to find. So, if you think your current place of business helps with your growth through the ease of transportation, foot traffic, being close to key vendors and attracting key talent then you may not want to take the risk of losing the location and may want to secure it by buying the location.
2. Starting a Business
Most entrepreneurs believe that investing in the purchase of their place of business is not possible for new start-ups. They believe that making the commitment of capital to purchase the location is too hard, and they should lease. The truth is that even start-ups have to pay rent so buying and paying the rent to yourself rather than someone may make sense if the business will generate enough cash flow. It also gives the start-up a valuable asset that will be useful later in the business’s lifecycle. So, entrepreneurs shouldn’t dismiss the purchase out of hand and instead should do the due diligence to see if the location is critical enough to their business and if the purchase can be made with little impact on overall cashflows.
3. Costly leasehold improvements
If you are leasing a building but have to do major renovations to run your business, then it makes sense to consider buying the property as the money spent on improvements would be lost if you had to move. However, you have to consider the other factor we have raised to see if it’s the right decision to buy, considering the potential loss of the leasehold improvements and the cost of repeating them in another location. There is also funding available for leasehold improvements, which you can choose to pursue.
4. Access to working capital
A well thought out properly financed property purchase can provide access to cash flow by reducing your monthly expense for rent. Trading this rental expense for the long-term ownership of an asset can provide access to working capital going forward, via a property line of credit. This is an option for the future that isn’t available by paying rent to someone else.
When should I lease?
Here are some situations where it may make more sense to rent a space for your business rather than buying.
1. If your business needs are unstable
If your company is growing rapidly or downsizing, or you’re just not sure what’s going to happen, you might be better off renting until the situation stabilizes.
2. You don’t want the hassle of owning
Owning a property comes with additional responsibility and potential problems. You may prefer to rent and focus on your business for the time being.
At the end of the day, whether you decide to buy or lease a commercial space, remember “You Are Not Alone”. As we have discussed, there are many factors that you need to consider before making a decision. Make sure you get expert advice such as real estate expertise, legal expertise, and financial expertise. At BPF Solutions we can take on the role of a financial advisor, helping you to build a good plan for your future and then working with you to use this plan to assess the feasibility of your real estate decision. We can also offer help in real estate and legal affairs if needed, from our network of trusted partners. So, start your journey today and call one of our consultants to begin the process.