Rent accounts for as much as 20 percent of a business’s gross income.
Such high costs often make business owners debate the financial pros and cons of buying versus building their commercial spaces.
So, is it cheaper to build or buy?
If you have suitable financing, time, and patience, building your own premises is the way to go. This is because you get to work around your budget to construct the most ideal commercial space for yourself.
Moreover, you can rest easy knowing that your new construction has warranties for all aspects of the building process. This allows you to anticipate the deferred future maintenance costs.
The following are reasons why you should consider building your own commercial space.
1. Enjoy an Upside in Equity
One of the most significant advantages of owning commercial property is that your loan payments will assist you in building equity.
Reason being a portion of your payments are usually directed towards paying down the principal loan amount.
Therefore, if you decide to refinance or sell your property, you can subtract the difference between the remaining amount on your loan and the property’s current market value as equity for your business.
2. Energy Efficiency
The beauty of today’s newly constructed commercial establishments is that they are designed to be energy efficient.
The problem with buying commercial property is that you might find yourself buying an older property, thus lacking features which enhance efficiency.
By constructing your own premises, however, you can have those features installed. Research shows that energy efficiency technologies can reduce your costs by as much as 20 percent.
3. Get to Choose Unique Designs
Your newly constructed business premises can be easily customized to fit your interests or choices.
This means that you can also choose how much the total project will cost.
For example, using light gauge steel for your building will allow you to build fast, enjoy enhanced safety levels while keeping your costs at a minimum. Learn more here about this innovative construction technology
Other choices include incorporating multi bays in addition to huge overhead doors. This allows you to have a lot of open space that makes your building look spacious.
You also have the freedom to install other custom features such as smoke wall light to reduce glare, built-in cold storage, insulation, and 24-inch walls to enhance usable space.
All these features work to improve your working space in addition to raising your property’s value when you decide to sell.
4. Asset Appreciation
Having your own property space allows you to enjoy the perks of asset appreciation, i.e. the increase in the value of your space with time.
Research shows that the U.S Commercial Property Price Index has increased by over 25 percent over the past decade.
If you decide to sell your business premises, you will earn capital gains that are equal to the difference between your construction costs and the current market value.
5. Rental Potential
When designing your commercial space, it is likely – as it is advisable – that you leave space for expansion. As such, it means that you will have space that can be rented out to other businesses.
This implies that you stand to benefit from the perks of rental income when you decide to create commercial space. What’s more, you can even purposely design extra units without jeopardizing your potential for growth.
Nonetheless, it is important to remember that once you decide to rent out your commercial space, you will need to assume the roles of a landlord and all the stressors that come with it.
6. Tax Benefits
Anyone who owns commercial property usually enjoys the following deductions when computing their taxes:
• Interest expenses
• Non-mortgage related costs
• Depreciation costs
You can multiply these expenses by an average tax rate (corporate) of 35 percent to determine your dollar tax savings.
7. Have Control over Your Property
Perhaps, the biggest advantage of building your own commercial premises is that you get to call the shots. If you decide to lease, you will enjoy certain rights that are usually incorporated in the lease.
For instance, a lot of landlords usually negotiate rental increases. This means that the law permits you to raise the rent on a lease at least once every year.
A landlord can raise your rent without your consent.
For example, if your rent increases at an average of 3 percent per year, and you have a 3-year lease, the rent will increase by up to 9.3 percent over the lease’s lifetime. This can create instability for a small business.
However, if you have constructed your own commercial premises, you will not have to deal with such situations. Rather, you will enjoy the peace of mind knowing that you just have to pay the fixed monthly payments on your loan.
8. Think Long Term
Consider what you pay monthly on your lease, now multiply that figure with the number of years you intend on being in business. That is a very large sum of money that you will be giving away without getting any returns in the future.
While building your commercial premises is a significant investment, in a few years, you will appreciate the effort you put in.
Besides, the monthly amount you will be depositing in loan payments is roughly equivalent to what you pay for your lease monthly. The only difference is that you will have something to show for it.
Also, as mentioned earlier, rent is never going to go down, so it is in your best interests to lock in your costs as soon as possible.
Buying Versus Building: Which Is Better?
One thing is for certain, buying or building your commercial premises is better than renting or leasing. But when it comes to the cost of buying versus building, building allows you to be more flexible.
With buying, you are stuck with what you are offered. Also, properties with modern amenities can be costly.
By taking the right risk, however, you will make your business more efficient and profitable. Learn more about how to reach your full potential by taking the right risks and gambles.