Hi Joe
Thanks very much for volunteering to write this Key Post. I appreciate that this is a Work in Progress, but here are some initial comments anyway.
Will the company be able to borrow at 5%? That seems very low for a commercial property loan. The cheapest
RIP mortgage rate at the moment is 5.3%.
I think it's best to compare the annual cost rather than look at cumulative costs over 20 years.
For example
Rental: €35,000
Less interest on €100,000: €2,000
Net cost: €33,000
Buy the property for €500,000
Mortgage interest: €400,000 @6%: €24,000
Buying the property increases profit by €9,000
Factors which may change the calculations:
Rent may rise which would favour buying.
Interest rates will rise which would favour renting
Cash-flow issues
Company will need to retain profits of €400,000 over next 15 years to repay loan. This is usually bad tax planning.
Business factors which favour buying
Security of tenure
Simpler management - no need for landlord approval to adapt property or sub-let or fix problems
Building up €500,000 of assets in the company gives the company protection against poor trading conditions in the future.
Business factors which favour renting
Could be more flexible e.g. if the business grows and needs more space, it's usually easier to move.
If you sell the business or give shares to employees, you will be giving shares in a trading and property company.