The property decision is looming
Our little company is in the middle of a very big decision. We are growing and need offices - so what do we do?
There are 3 viable choices:
1. Rent office space
2. Buy commercial office space
3. Buy a house and use as offices
The problem is trying to work out which one is best. They all have pro's & con's but each seems to have a con that turns me off enough leaving me in no decision hell. Here is a basic intro into each...
Rent office space:
Pro: Relatively cheap compared to buying
Con: Zero investment in property. You're paying someone else's bond
Buy commercial office space:
Pro: It's an investment and this area of the property market is set to boom
Con: You have to pay a min of 15% deposit and the bond is 10 years not 20 (ouch!)
Buy a house and use as offices
Pro: Affordable compared to buying offices
Con: Transfer and legal fees will be more than a years rent under option 1. It's like burning money.
So this is where we are stuck. At this stage any decision will be a good one, even if it's wrong. I'm so stuck with which option is best that I'm happy to make a wrong decision because at least I'll then know and can take it off the list!
Frustrated!
posted by Crusoe at 8:02 AM
4 Comments:
This is always a tough decision, because it has such long-term repercussions. My advice is to go for your third option, if finances allow it. Yes, you pay transfers etc upfront, but it really is no different than paying rent/operating costs to someone for three years, EXCEPT that you have equity in property. I did this for a retail business I run (i have a shop in a mainstream shopping centre, and a showroom in a "house") and I cannot begin to tell you how grateful I am to me :-) for deciding to buy the property instead of renting another shop.
9:13 AM
Eve, thanks for the advice. As weird as it is getting advice from someone I've never met, it is surprisingly helpful.
I know in my heart that buying is the best way to do it, just seems like there is so much stacked against me doing it. If it's commercial I have to pay 15% deposit and then pay off the bond in 10 years (which isn't feasable), and if it's a house there are the trasfer duties.
I think I need to suck it up and just do it. Dealing with a decision is always easier after you have made it than before :)
9:55 AM
It's all about affordability.
Currently in Cape Town the rental market is way below the purchaing market, so renting makes sense.
Sinking your available cash into a bond may realise a longterm asset benefit but does it hamstring your company from a cash point of view.
Had a similar experince recently. There was the corporate image based purchase (excellent location and fit), an investment based purchase (venue not perfect for office but excellent investment), short and long term rental.
So what now, back to basics - we're an IT company, not a property investment company. Therefore if property was going to be purchased it would be purchased by one or multiple of the directors in their private capacity who would rent it to the firm and obviously cover the difference in monthly cost.
Privately they may have an interest in investing in property but current corporate strategy does not mandate a purchase - it takes your eyes and money off the business goal.
Therefore short or long term rental - strategy comes into play again: where do we need to be now and how much space do we need, what is the growth potential. If the medium to long term strategy and planning is unclear go with a shorter term rental as opposed to a 3-10 year lease as your corporate requirements may be way different in 12-24 months time and you'll be stuck with a long term lease or a fixed office or house you have purchased.
Yes, you can sublet, or rent-out owned property or find a buyer, but this takes a fair amount of your time and your eye off your primary business.
So if you know strategically what you hope to achieve and have a handle on you cashflow, your decisions are hopefully made a bit easier.
Hope it helps.
4:32 PM
Yo Rev
Shot for the advice, I actually printed it out to show someone else :)
You make some good points - especially about staying focused on your focus! It's one of my key rules of business.
4:28 PM
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