As a former Dragon on BBC Online Dragons Den, serial entrepreneur and Scottish Sun Columnist Shaf Rasul gives us his view on Buying or Renting a house or commercial property
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I love making my assets pay so when it comes to buying versus renting, there’s only one way to go for me. This week’s Ask Shaf is about why owning your assets, rather than renting them, makes good business sense.
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Let’s get back to today’s Ask Shaf.
Look around your home. Look at everything you’ve done to improve it since you’ve lived there. New kitchen maybe? New central heating or a new bathroom? Maybe you’ve not done anything quite as extensive but you’ve painted it, bought some cracking furniture. Now think about who gets the benefit of your hard work. If you own the property, then you get to enjoy the improvements and you get the benefits of seeing your house value rise. If you rent, sure, you get to live in a nicer pad but your landlord is the person who is ultimately making money out of your home.
Whether it’s the family home, or a business, I’m biased towards buying property assets over renting, and that goes for warehouse space too. Buying nearly always makes financial sense. The outlays to put capital in and to borrow are less than the rents landlords charge as they also have to make a profit on the running of the property. If you buy, you get that profit and the capital appreciation.
Here’s a great business tip. If a company goes into administration, buy the premises from the receiver. Lenders generally don’t have a clue about the proper values of properties, so there’s a chance to snap something up below market value.
You don’t get to be an entrepreneur for as long as I have one without developing a few skills along the way and I’m pretty good at working out the financial results of doing a deal in my head. OK, it might not be exact to five decimal places but my mental arithmetic rarely lets me down. The only exception to that rule is buying property. You need to get into the nitty-gritty of return on investment calculations if you have a complicated decision to make.
Ready? OK, here goes. Suppose you need a shop for the next stage of your business development. If you do want to make a decision based entirely on finance here’s how to do it. Assume all things are equal, you will sell the same amount of goods from the shop however you occupy it, owner or tenant. Now make a five-year cashflow of the outgoings involved for each method. Think about the insurance, rates and other expenses. Now discount the cashflow for time and arrive at the net present value of the two methods and decide on the better of the two. If you don’t know how to do this, get your accountant to show you and don’t leave their office until you can do it – it’s the only sensible way to measure financial return on investments and an essential skill for somebody building a business.
For balance, here’s the other side of the coin. Sometimes renting is better. An entrepreneur was trying to build up a chain of pubs in a town that had just welcomed a second uni. He leased premises and used any profits generated by the business to get into the next premises. To grow rapidly, leasing made more sense to him and he filled the pubs and sold the chain as a growing concern.
My advice is to weigh up your options but always lean towards buying. When property is bought and paid for, it can give your business a new lease of life.
ARE YOU INTERESTED IN REAL ESTATE / REAL ESTATE INVESTING / OR PROPERTY INVESTMENT IN THE UK THEN WATCH THIS SPACE FOR SHAFS REAL ESTATE SERIES WHICH IS COMING SOON
The purpose of this new series is to allow Shaf to share his expertise and his acumen to help YOU that’s right YOU become a successful Real Estate investor or developer. Shaf has had an incredible journey as a Real Estate Entrepreneur. There have been highs and lows along the way, and he is ready to pass it all on to you. And the best bit?
He is not after anything in return. He is not selling; he is not asking you to part with your money. He doesn’t want you to go on any courses or buy any books. He just wants you to watch and listen to what he is saying, learn from it and ultimately start or grow your real estate business.
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