When it comes time for a new space, one of the most critical decisions is to decide between buying vs. leasing commercial property. The final decision lies on your company’s needs and expectations for the future. At Price Commercial, we want to make sure you are making the best decision for you and your company whether you’re looking for office, retail, showroom, or industrial space. Here, we will help you understand the benefits and disadvantages of each option.
Leasing Commercial Property
A lot of times, the decision between buying vs. leasing commercial property space is a hard one. Maybe leasing makes the most sense, here’s why:
No Down Payment
Typically, when purchasing a property with a loan you must put down 10 to 40 percent of the total value. When leasing, you generally only have to put down the security deposit, a more affordable option for some.
No Management of Repairs and Maintenance
Things like building repairs, HVAC, electric, and plumbing maintenance are generally managed by the landlord or their professional property management team. This also includes any tenant complaints on a day-to-day basis.
Access to Premium Locations
Because development has already occurred or is currently occurring, in desirable locations leasing property often gives the opportunity to be in these areas. And, there are far fewer small-sized buildings for businesses to choose from in desirable locations.
Flexible Room to Grow
The biggest benefit of choosing to lease is flexibility. And leasing is a much easier way to accommodate growth over buying.
There are times, though, when leasing isn’t the best option:
Variability of Cost With Renewal
By no surprise, there is a potential increase in rent when it is time to renew your lease. This can be a critical problem depending on the situation your company is in at the time of renewal.
This is why we recommend using a broker to help you negotiate the terms of your lease.
Your Improvements Don’t Add Value for You
If and when you do leave the space, any improvements you make don’t benefit you, they benefit your landlord.
There is the option to negotiate a Tenant Improvement Allowance in your lease, schedule a consultation to discuss this option with a broker.
In some cases, it does make sense for companies to purchase existing property to move into or build on, here’s why:
To Build Equity
If you do purchase, your company then has the opportunity to have an investment that builds equity over time. Eventually, the equity could be used as collateral if you choose to expand your business.
Typically, the financing of your property remains fixed. Meaning your mortgage payments will never increase during the loan period.
As you calculate taxes and earnings, you can save money with the purchase of a property by depreciating your building over the life of the asset.
Additional Income & Growth Opportunities
The most beneficial aspect of owning property is the opportunity to lease some of the property to other tenants to generate monthly income, and having the space to grow.
Improvements Add Value to Your Bottom Line
As you’re more likely to stay at the property for a longer period, you’ll see the benefit of any renovations you make because they will add value directly to your bottom line.
Unlike with leasing, any renovations that you make to the space will only add value to your bottom line in the long run. And, will add to the property’s overall value.
Like leasing, purchasing isn’t always the best option though.
Lack of Flexibility
If you do purchase property or space, you are decreasing the option for flexibility in your business. This can hinder movement due to growth and changes that leasing space allows.
Buying your own commercial space comes with large initial costs upfront. Often times, this money can be spent better re-investing in the business, rather than on down payments, appraisals, repairs, and improvements.
Responsibility for Repairs, Maintenance, and Taxes
The opposite of a lease, when you own your space, you’re responsible for the repairs and maintenance the landlord would usually handle. And on top of that, if you are busy running your business it is likely you will need to hire a full-time facilities team, cutting into your profit even more.
So, Should You Lease or Buy Commerical Space?
Like most business questions, the answer isn’t crystal clear or cut and dry. The decision weighs on a combination of financial, tax, and unique company factors.
While making this decision, be sure to consult your accountant and financial planner. You also want to discuss your situation with a qualified commercial real estate expert.