If you rent your warehouse, shouldn’t you think about buying it?

Owning your warehouse could be the foundation for your business growth – here are the pros and cons

Owning a dedicated warehouse space can be a great move for your business, bringing you increased control, cost-efficiency and a stable platform for growth.

Many businesses, particularly in their early days, have to rent warehouse space. While renting may offer advantages for affordability and flexibility, ownership brings a whole set of advantages that can fuel your company’s long term growth. Let’s explore the reasons why buying a warehouse might be the strategic move your business needs.

1. Control your destiny

Ownership means that you can organise your warehouse space exactly how you need it. Dedicated loading docks, specific racking systems, even a designated area for quality control – you can design it all to optimise efficiency. Renting often comes with limitations on modifications, hindering your ability to streamline your operation. Owning gives you the freedom to create a space that perfectly complements your workflows and can help project a desired company image.

2. Long-term investment, short-term savings

Rental costs can creep up over time and there’s no payback on investing in a property you don’t own. Having a mortgage on a warehouse could allow you to lock in your monthly payments for a fixed term. This predictability helps with budgeting and financial planning. And over time, the value of your warehouse is likely to appreciate, creating a valuable asset for your company.

Another advantage of property purchase is that you may also be able to restructure outstanding debts to improve your cash flow.

3. Increased stability

When you rent, you run the risk of your landlord deciding not to renew your lease. Scrambling to find a new space has the potential to disrupt your operations and customer service. Owning a warehouse eliminates this uncertainty. You have a stable base for your business, allowing you to focus on growth and innovation.

4. Reap the tax benefits

Owning a warehouse comes with tax advantages. You can potentially deduct mortgage interest, depreciation on the building and property taxes from your taxable income. Consult with a tax professional to understand the specific deductions you might be eligible for.

If you want to find out whether it is best for you to rent or buy your warehouse, try our rent vs. buy calculator.

What’s holding you back? Here are three things to consider:

1. Upfront investment

Buying a warehouse requires a significant upfront investment, including the down payment (typically 25-40 percent loan to value), closing costs and potential renovations. Swoop can help you manage your cash flow at this stage so that your long term investment doesn’t harm your immediate financial situation.

2. Affordability assessment

Lenders will assess the ability to afford a loan by calculating ‘EBITDAR’ earnings before interest, tax, depreciation, amortisation and rent. It is possible to work backwards from this figure to establish the level of borrowing a business can support but it’s important to highlight that any lender will incorporate a stress test to ensure the loan is still affordable in certain circumstances, such as a high interest rate environment or a reduction in profits. Lenders will also take into account shareholder dividends and the repayments of any finance (such as HP, asset finance, recovery loans, and other existing obligations) already supported by the business.

3. Long-term commitment

Owning a warehouse ties you to a specific location. While this can be a good thing for stability, it also limits your flexibility if your business needs change significantly in the future. You will also be responsible for repairs and maintenance. Again, Swoop can help you manage your finances so that you are able to meet your commitments.

Making the right choice

Buying a warehouse is a significant decision that requires careful planning and financial analysis. Swoop’s experienced commercial mortgage team is ready to help you weigh the pros and cons and get you the best deal on the market when you’re ready to buy.

Register with Swoop for a free consultation and let our experts guide you through the process of owning your warehouse and building a solid foundation for your business’s future.