A short checklist for buying a commercial property

Purchasing a property for your business adds another dimension to your company finances – whether you run a corner shop, factory, office garage, your business will also become a property investment vehicle.

In other words, the potential benefits of buying will often last far longer than your career or even the business itself. Once a freehold property has been acquired it is possible for the company to rent it back, so rather than line the pocket of a third party landlord, you can over time use what the company would have paid in rent to pay down a mortgage.

However, one word of warning – buying a property is usually a long term commitment and can tie up a lot of cash, not to mention time so buying to occupy should only be done if there is a solid business case to justify it – the property tail shouldn’t be allowed to wag the business dog! So once the decision has been made, what are the next steps?

Finding the right premises for your business can be a challenge; you need to start by making a list of what you need and what you don’t. Consider things like

• Location, good 4G and broadband connectivity, close to transport, close to shops for staff to buy a sandwich or coffee?
• Does it have the consent you need?
• Is there room to grow or if things take a downturn, can you sublet any of it?
• Can you trade there quickly or does the building need a full refurbishment?
• Parking and deliveries – are these important to you?
• Is it close-by? Sometimes clustering near competition can be a good thing.

By all means, do some research to make sure there may be some suitable properties around, but before you go too far you’ll need to get the fundamentals sorted including:

• The structure. How will you purchase – in your own name, the company name or will you start up a new company? An accountant will give you the advice you need on this as every case is different.
• Finance. Commercial finance is likely to be more expensive than a home-loan so expect around 4% over base and a maximum Loan to Value (LTV) of about 75%. Some people raise money on their home, which is cheaper but risky. If you have other investment properties, you could sell one to free up cash, but this can be tricky to time right (if your in rush you could try selling cheaply and directly yourself or use  Speed Property Buyers / similar property buyers).
• Cash. With low LTV’s you’ll need a substantial amount of cash to buy, and it’s worth considering whether this could starve your firm of much-needed capital.

The majority of people who go ahead and buy have seen good capital growth over many years and of course the comfort of knowing that they control their business address. However, for some, it has been a step too far and something that is later regretted. Proper planning (and great advice!) is a must.