The factory building is an investment. It should be judged like any other
21 September 2026, 14:12
The Economist asks whether house prices will survive this rise in interest rates as well, given that the props that held them up last time are no longer there. It is a question for the property market, and at first sight it has nothing to do with you.
It has everything to do with you, just in a different form. Because your money is in the factory building, and almost always nobody has ever worked out what it earns.
Buying the walls is a decision about how to deploy capital
In the businesses I work with, owning the factory building is almost an article of faith: ‘rent is money down the drain’. It is a phrase with a grain of truth in it and an error of perspective.
Buying the building you work in means taking a large share of your capital and leaving it idle in an asset that produces no margin on its own. It is neither right nor wrong in absolute terms: it is a decision about how to deploy capital, and like every such decision it has to be measured against the alternatives, starting with the obvious one — putting that same money into working capital, machinery or the sales network.
The right comparison is not ‘mortgage payment against rent’. It is this: on one side, the rent you would pay; on the other, the mortgage payment, plus the major maintenance that under a lease falls to the landlord, plus the taxes on the property, and above all the return that capital would have produced if put to work in the business.
An example built on paper. A company with a turnover of three million buys its building for eight hundred thousand euros, three hundred thousand of it from its own funds. Those three hundred thousand, put into the working capital of a business running at a 40% contribution margin, would be a different story. It is the calculation nobody does, because the property ‘stays’, and what stays gives a sense of security that the numbers do not always bear out.
What happens to your indicators
Here the discussion returns to familiar ground, and there are two consequences, both of them measurable.
The first concerns the net financial position: the mortgage on the property goes into debt, while the property goes into assets but produces no EBITDA. The ratio of net debt to EBITDA gets worse, and it gets worse for a reason that has nothing to do with how the business is run. If you were at 2 times before and find yourself at 3.5, the bank sees a more fragile company, even though you have bought a solid asset.
The second concerns the DSCR: the payment on the property mortgage goes out every year like that of any other loan, and weighs on the ratio in exactly the same way. If you were at 1.4 before and the new payment takes you to 1.15, you are below the threshold banks normally require, and you find out when you ask for another credit line for production and are told no.
Neither is a reason not to buy. They are two things to know beforehand, not to discover afterwards.
The question that matters more than any other
The factory building is assessed with the same three numbers as any investment: how much it frees up each year — here, the rent saved, net of the costs you take on — how many years it takes to pay for itself, and whether the debt that comes with it stands up.
There is, however, one difference that sets this investment apart from a new machine: the building does not produce margin, it houses it. An extra press can increase production capacity; four walls cannot. So the only return it brings is what you stop paying to others.
And that is why the real question is not whether buying pays, but a different one: would that capital, put to work in the business, have earned more?
The answer depends on what you would do with it. If today you are turning down orders because you lack capacity, you have proof that an alternative use exists: those three hundred thousand, put into a machine, an extra shift or the stock needed to serve a large customer, produce margin every year, and that margin grows with volumes. Walls do not: walls produce nothing, they only let you stop paying rent. In that case you are comparing a full return with a saving, and the return usually wins.
If, on the other hand, you have capacity to spare, the market is flat and cash sits in the account with nowhere to go, that alternative does not exist. Then the rent saved becomes the best return available, and buying makes sense.
What to look at tomorrow morning
If the building is yours, do one calculation only: the rent you would pay today for the same space, divided by the value of the property. The result is a percentage, and it is the implicit return on your walls.
Then compare it with your contribution margin and with the cost of the money you borrow from the bank. If that percentage is the lowest of the three, the building is not a mistake, but it is your least profitable use of capital. And knowing that changes the next decision, not the one already taken.
This article was prompted by a news item published in The Economist.