Buying a pub has lots of advantages. The potential for high yields, central locations and the ability to rent rooms above premises, means that the pub is a great investment all round.
However, often potential investors are not sure as to whether they should buy or lease their pub.
We took a look at the advantages and disadvantages of both:
Leasing a pub:
The advantages
When you lease a pub in the UK you sign a long term agreement of up to, say, 100 years with the property owner (often a pub company) to occupy the venue. This is usually cheaper than a loan and there is no re-sale problem at the end of the lease. Also, you will have a tax advantage, with up to 100 percent of the rental paid offset against the corporate tax liability of your company. As well as this, budgeting payments is much easier because they are fixed – you are not at the mercy of rising interest rates and the lease is normally automatically renewable. Also, the initial outlay is not as much as you’d likely have to pay for a deposit if you wanted to buy the freehold.
The disadvantages
One of the disadvantages is that the buyer has no true asset value in their pub and in the long run a lease could more expensive than a loan. If any improvements are made to the pub, the benefit goes to the owner and if you increase profits, you could have to pay more rent. There will also be a heavy legal document, governing how you operate the business, usually including that you should fully maintain the premises and insure against all trading/property risks.
Buying a pub:
The advantages
When you buy a pub on a freehold basis it’s yours – much as if you buy a residential property. You therefore enjoy a lot of freedom as well as being able to benefit from every additional pound of turnover (sales) that delivers additional profit to you, without the pub company taking a slice by increasing your rent. So if you buy a pub and you make it more profitable, you will benefit from your hard work and the growth in the asset value.
The disadvantages
The downside of buying a pub is that you’ll have to pay a very heavy price for owning it outright. Freehold pubs are often two to three times the pub’s actual turnover and therefore raising the finance could be difficult and time consuming. You need roughly a third of the total price so it’s important to make sure that you have access to the money.
We hope these tips help you making your decision going forward. Good luck!
