Question

Petro Roos is thinking of purchasing the business premises rather than renting it. Provide Two separate advantages and two separate disadvantages of this option. Note: the business has no financial investments. Any TWO separate advantages Any TWO separate disadvantages​

Answer 1

Answer:

Advantages of buying business premises

There are considerable advantages to securing a mortgage to buy business premises, including:

1. your mortgage repayment is likely to be similar to or less than a rental payment on the same property
2. with a fixed rate mortgage, your monthly repayments will be predictable
3. you aren't exposed to any sudden, large rent increases
4. you may be able to sublet any free space, reducing your monthly repayments (you may require permission from your lender to do so) and allowing you to generate extra income
5. interest payments on a commercial mortgage are tax-deductible
6. any gain in value of the property will increase your capital
7. as your business grows, you may be able to extend your existing premises, avoiding relocation costs
8. you have control over what alterations you want to make to your office space

Disadvantages of buying business premises

The disadvantages of buying business premises include the following:

1. Unlike renting, you'll need to come up with a substantial mortgage deposit - this is money that might be used for more important business purposes.
2. If you own premises, you may find it harder to relocate your business, because selling business premises is a complex and sometimes lengthy process. If you rent, you may be able to negotiate to end your rental agreement, or to find another organisation to take over your tenancy at short-notice.
3. If you have a variable rate mortgage, you are exposed to increases in interest rates.
4. Owning a property means you'll be responsible for factors such as maintenance, fixtures and fittings, insurance, decoration and security, which can prove expensive.
5. Repaying a commercial mortgage
6. Commercial mortgage fees and costs
7. Book traversal links for Advantages and disadvantages of buying business premises

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