Why would you not mortgage this purchase?

Surely your access to cash is very valuable to you as a growing business, and the property will generate a monthly return when leased.

Being worried about banks failing with all your money in it at un insurable amounts and having it in real estate instead does not make sense to me.

I like everything about your ideas to buy a building minus the cash outright aspect of it, and if done correctly you are probably going to make a nice bundle of money on the right property over the years.

Are looking into mortgage rates this week, we're going to be careful to ensure we have enough cash to operate with if we do go ahead of course.

All the directors are onboard with the property idea, as is our angel and a family friend who is a very sucessful tech entrepreneur. So we're going to go ahead with it if we find the right place.

Quite surprised how this thread has turned into a critique of our ambition and judgement, but there you go! Thought it was a fairly simple proposition and was just wanting to make sure it wasn't completely off the rails and a terrible mistake. 2+2 has served me well over the years for help and advice so I have considered it all.

I honestly think we are not in the right position to scale up yet strategically. I can see how some people might think this is a mistake, but at the end of the day we're doing well, enjoying our lifestyles and work so we're happy to keep things as they are anyway even if we might be missing out on a head start on growth.

I just don't see buying a property at 5% and earning those low returns as a better bet than the 1.5% at the bank and liquidity.

You would basically have to find zero good opportunities within 5 years to make this real estate thing just even marginally better.

Your group is just itching to do something for the sake of doing something.

If you do go ahead with the real estate thing for appreciation, pay a little bit more for better location in an area that has potential to appreciate within next 5 years.

We can't see any reason we'd need the liquidity for up to the next 12 months, in which time we'll probably be in roughly the same financial position again as we are today.

If for whatever reason we do need liquidity urgently we can mortgage the property, or it should be fairly easy for us to raise money by other means.

We're not itching to do something for the sake of it, it's been growing for 3 years. We don't consider 5% a low return on cash we don't need right now, it's been earning far less than that over the last few years.

What's confusing me is if we'd just paid ourselves big dividends people would congratulate us if they knew, but this way seems to be viewed as some big mistake.

Not saying to pay dividends, I hardly do that for myself when I have capital sitting around.

Gullanian I think the general fear/pessimism comes from locking up all your free cash, and leaving the company with little margin of safety. If the business landscape you are in changes quickly and or you lose a few big clients would you become cash strapped or have negative cash flow after the purchase? Why complicate a good thing?

The idea of leaving little room for error drawing from cash and taking on a large asset outside your circle of competence is a little scary for many. I would prefer the idea of taking a flexible mortgage for 50% of the value, and then pay it off with your excess cash.

I also agree with the other poster that hedging folding banks with buying real estate is not fully logical, real estate could very well carry higher risk of monetary loses. I'm not familiar with London market but buying after 3 years of above average returns will certainly carry more risk. I assume/hope the purchase of the real estate is a 10year + play? I do like the idea that it gives you guys access to better talent and ability to expand your office.

If you are looking at it in the form of investment to increase your return on cash from 1 to 5% I think its a poor idea at this point and you may be underestimating some associated risks. Id wait a few more years until the business actually demands the better location and larger office.

If it was my business there is no doubt that excess cash would be invested into some excellent 20% ROE compounding businesses that are consistently averaging 15% returns year over year . Minimal work and risk on your end, and keeps your cash much more liquid.

Obviously you know your financial state best so you have to take all comments with a grain of salt. Lastly it sounds like your decision has already been made, I'm sure it will all work out fine, keep us updated please.

Thanks, agree probably overly worried about banks folding or losing the money somehow and that losing significant value in the real estate is far more likely.

Agree that a purchase outright doesn't leave us with much, so will look at options regarding perhaps getting a flexible mortgage.

The ~10y+ timeframe seems about right, and the property does give us plenty of room to expand and hire in that period.

Will certainly update this thread with the buying process/photos when I can etc if people are interested! Although there's a chance the property we're eyeing is not going to work for rental, so it might be a long wait for something more suitable to come up. Commercial freeholds are very rare in London (especially in our price range) since the government let everyone convert office space into residential within the last year or two.

Went to look at the property we're interested in today, it's beautiful in a great spot. Even has a view of the Thames, (about 100m away) which you can see from the mezzanine. Lots of glass frontage in a quiet spot, with lots of residential modern flats around, a bar, gym, consierge on-site etc etc. Very very nice place, feels very nicely sized.

A few drawbacks though:

- Not permitted/highly unlikely to be permitted for shop/residential in the future as the allocation of space in development is very tightly controlled
- It appears building owner has some rights of refusal for who you license out to
- Ground rent £600 per year, service charge of £2.5 sq/ft per year (Over £4,000 per year additional fees)
- They had a buyer lined up (found out his offer which was handy) but he backed out because he was uncomfortable with the buying arrangement setup to get around VAT/stamp duty. Will need to consult lawyer very carefuly on this point if we go ahead
- Ground floor has only kitchen/bathroom space, if we did want to license space we'd probably need to build a corridor = less sq ft, awkward. Not sure if possible yet, space is awkwardely shaped

Absolutely love the building and the area, it's a 10 min walk from a major London station, and 5 min walk from another station. Costs look too high unless we're confident we can license it out which is the problem. Yearly cost in the region of £12k (business tax) + £4k (ground rent + service charge) + £5k (utilities) = >£20k per year.

Talked about it, and we're not willing to license desk space to individuals small groups, we want small companies who'll take a lot of space and be there more permamently. Licensing desk space obliges you to open up on time, and keep it open for a set time, and have someone on-site at all time which isn't going to work for us and is too much overhead.

Will try and work the floor plan see what we can come up with, but it looks likely that unfortunately it's just not going to fit the bill.