Congratulations on reaching the point of growth where you need the space of a warehouse! The question now is, is buying a warehouse the right investment for your business right now, or should you consider renting?
This article aims to help clear up the questions you have, and maybe provide answers to questions you hadn’t thought of. We hope these insights will help you decide whether to buy or rent a warehouse.
Renting a warehouse
You’re probably already aware that the majority of businesses like yours rent their warehouse space, so may be drawn to this option initially. The landlord holds the responsibility, whilst you pay for the refurbishment to make the space suit your needs. Here’s what to consider:
Pros:
Flexibility – Since the property is not yours, you have the option to move according to your business needs. There may be relocation costs incurred, but it’s much easier to move when you rent.
Lower cost – Compared to a mortgage and other costs when owning a commercial property, you could be retaining more of your business’ capital in profits which can be reinvested for growth.
No maintenance fees – The cost of commercial property maintenance can largely come down to the landlord, depending on what is stipulated in your lease agreement.
No distractions – Responsibilities regarding the property will go directly to the landlord, leaving you free to focus on your business and not take on the additional responsibilities of ownership.
Cons:
Less control over the space – As a tenant you will need permission from the landlord before you make any adjustments to the space. And you may be required to pay the cost of putting it back the way it was before you rented it, when you leave. You may also be forced to leave if the owner decides to sell up.
No equity – Just as with a house, if you do not own the building you are not acquiring equity in the property, and therefore cannot take any capital benefits from it.
Rent changes – You may subject to an increase in rent every year. This makes the financial planning side of your business a little more difficult.
When comparing these pros and cons to that of buying a warehouse, you might decide that renting is best for you. So, let’s make that comparison now.
Buying a warehouse
Pros:
When you invest in commercial property, the pros are largely the opposite of the cons of renting a warehouse, above. You have greater control over the space which you occupy, you do build equity and it can be a good source of income if you later decide to rent it out. The fixed cost of a mortgage to purchase the property will not change so you can assure your financial forecasting is made easier.
Cons:
Upfront costs – Deposits to purchase commercial properties are higher than the residential market, so you’ll need a decent amount, possibly up to 40% of the value in capital to invest.
Greater responsibility and cost of maintenance – As the owner of a commercial property you have responsibilities toward safety and maintenance schedules that you otherwise do not have as a tenant. This is likely to be an added cost.
Investment risk – Though property should in theory gain value over time, you may not find this is the case if you sell early, or we experience another price crash…
We hope you have found the points in this article useful in deciding whether to buy or rent a warehouse. We would also advise that you speak to your accountant and cashflow manager before making a final decision.
