SHOULD YOU BUY A WAREHOUSE OR RENT IT FOR BUSINESS EXPANSION?

Posted by Quick Shift on March 21st, 2020

So, you have zeroed in on warehouse as your preferred storage option over 3PL providers like Amazon fulfillment centers et al. But a tricky question you might be facing now is whether to buy a warehouse or rent it. If that thought did cross your mind, your business must be doing reasonably well since buying a warehouse is an excessive investment upfront.

To be blatant, there’s no single answer to the question for you. It depends upon a lot of factors, including the availability of capital, business goals and needs, projected growth, sustainability, and so on. Here we will discuss the advantages and disadvantages of both the option to help you make the right choice.

BUYING A WAREHOUSE

Pros

• Flexibility

This one advantage can also be termed as a con taking a warehouse space for rent. While launching a new product range or tapping into a vertical, you would need to make changes in your storage space. This includes the addition of pallet racks, an adjustment in layout, and other constructional changes. Buying a warehouse storage space in Pune and other cities make you the owner of your own deeds, which means you won’t need to take permission from the landlord.

Renovate your warehouse as well as make other changes to boost the growth of your business. You can customize a pallet racking system and construct the warehouse according to your needs rather than using someone else’s installed system.

• Stability

Rental rates fluctuate quite a lot, and your landlord may charge exorbitant prices, which you can do little to control. Mortgaging a warehouse is a better option in this regard as the mortgage rates fluctuate quite less. If you can make the complete the payment in one go, you have a large property to yourself and would keep your hard-earned profit to yourself.

Taking a warehouse space for rent leaves you with no control over when you need to relocate. Your landlord may choose not to renew your lease calling for urgent relocation. Looking for a new warehouse takes time, and you might incur losses in such a case. Buying your own warehouse offers you the stability to grow your business from one place.

• Long term investment

Along with benefitting your business, a warehouse is also a reliable investment. Its value will increase over time, and you can also use it as equity in loans to grow your business. You can also sell the warehouse at a profit if in case you need urgent capital.

Cons

• Huge investment upfront

Buying a commercial warehouse generally requires around 20%-40% of deposit upfront while you would just pay around 5% deposit on residential properties. Depositing such a large amount can result in decreased liquidity, which in turn adversely affects new businesses.

• Maintenance

While buying a warehouse gives you the option to customize your storage space as per your requirements, it also means that you have to bear the costs of maintenance. You would have to employ your own workforce and organize the warehouse besides focusing on the growth of the business.

ADVANTAGES OF RENTING A WAREHOUSE

• Flexibility

While you can’t customize the structure of your rented warehouse storage space in Pune, Mumbai etc, you have the option to switch storage locations as your business grows. Buying a warehouse in different cities can be practically impossible, but you can easily rent warehouses on different locations for secure storage and quick shipment. You can also switch to a more massive warehouse when the product demand increases.

• Maintenance

No one can do all of it alone. Keeping a check on inventory, shipments, delivery as well as manufacturing and marketing is already an arduous task for a businessman. Add to that the headache of renovating the warehouse or repair. Your landlord will take care of all those problems in a rented warehouse.

Cons

• Cost

Rental rates fluctuate a lot while leasing a warehouse, and there is no way they will ever go down. You will have to pay a monthly rent that increases annually. The increase can be quite significant, and you’re not gaining anything by the rent, unlike buying where you are actually investing your money.

• Lack of control

In contrast to buying a warehouse or using an Amazon fulfillment center, leasing it means you don’t have control over customization of property or changing the layout. You can’t change your storage space as per your requirements without the landlord’s permission. Additionally, you might have to relocate if the landlord finds a better deal, which can affect the productivity and stability of your business.

WHAT SHOULD YOU DO?

A small scale business or startup in its growing stages would be better off leasing a warehouse for storage. You can choose to invest in buying a warehouse once your business has grown enough. Weigh in all these factors and make the right choice since investment should always be well calculated to build a business.