Property: to buy or not to buy?

Is the recession an opportunity acquire property, asks Anna Hirschfeld of the Ethical Property Foundation

Anna Hirschfeld, project assistant, the Ethical Property Foundation
Anna Hirschfeld, project assistant, the Ethical Property Foundation

Mortgage repayments may be similar to rental payments on the same property, you will not be exposed to sudden rent increases and, with a fixed-rate mortgage, your monthly repayments will be predictable. You could sublet any free space, creating extra income. Interest payments on a commercial mortgage are tax-deductible and any rise in the value of the property will increase your capital.

However, there may also be major disadvantages to buying. You could be affected by interest rate rises and dips, and any decline in the value of the property will decrease your capital. You'll also need to come up with a substantial deposit, and your options may be limited because it will be much harder to sell premises than find a new tenant. You will also be responsible for all maintenance, fixtures and fittings, insurance, decoration and security.

When looking at financing a purchase, you might consider grants, donations, supporter loans, bank loans, cash reserves or a mixture of these. Some options provide you with capital that does not need to be repaid, but often comes with strings; loans may give you quick access to money, but they have to be repaid with interest and may incur further bank or legal fees.

If your organisation decides to buy a property, there are a number of costs to take into account on top of the purchase price: taxes, professional fees, refurbishment costs and moving costs. There will also be continuing costs such as waste disposal, recycling, longterm maintenance costs, building insurance and running costs.

These can trip people up. For example, how much you end up paying in fees depends on how the property purchase progresses and is difficult to budget for. And if refurbishment work needs to be carried out before you move into your new premises, you may end up paying rent and service charges on your current premises as well as the mortgage on your new premises.

To avoid such problems and ensure your plans are realistic, it is worth contacting key professionals such as commercial property agents, lenders, solicitors and building surveyors and having a chat about your intentions so you get no nasty surprises.

A property can be a great asset to an organisation, but it can just as easily become a drain on your money and resources. The lesson here is to be aware of the risks as well as the benefits and think before you jump.

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