Buy or Rent a Commercial Property – The Pros and Cons
If your business has reached a stage of growth where you need to move into a new commercial property then you probably have a lot of questions on buying vs leasing. The truth is there are good things and bad things about buying a building for your business and leasing a building for a business.
The decision you make will probably end up being informed by the type of business you’re running, how much space you need, how much money you have available to you, and a lot of other factors that will need to be considered. To help arm you with all the information you could need when moving into a property for your business, deciding whether or not to rent or buy!
Benefits Of Buying Commercial Real Estate
A lot of people instantly want to buy commercial real estate rather than work with a property management company on leasing. Buying a building for small businesses certainly feels like a seminal point in your business career. However, it isn’t all about buying, as we’ll explore later. The benefits of buying are clear:
- You will own the building and can resell it in the future, which means it may not cost you anything other than the loans you have had to take out to buy the real estate.
- The real estate might actually increase in value. It is possible that you might make a profit out of the building as you are adding an asset in financial terms.
- Stability is another benefit. You aren’t relying on a landlord or someone who owns the business to tell you that you are able to tay for years!
- Side incomes such as using different parts of the space to rent out to other businesses for storage or other uses can bring in an income, you may have car parking spaces you can rent out.
Buying vs leasing is a move for long term stability and not having to rely on anyone else. This has a nice feel for a lot of businesses, people love the idea of their own property that they can use for years to come. It could be the start of a business empire. However, leasing is an alternative that isn’t to be ignored.
Benefits of Leasing Commercial Real Estate
There are a number of advantages to leasing real estate. A huge number of businesses prefer leasing for a number of reasons. Leasing a building for a business is common practice. The benefits of a lease over a purchase include:
- A lease leaves more capital for other things. You will be paying monthly instead of paying one big lump sum.
- A lot can be dealt with for you by a property management company. The business premises will actually be ready to house your staff or business whereas a property you buy may need to be fully kitted out.
- There’s more out there. You’ll find there to be more choice on the leasing market as opposed to the buying market in the vast majority of cases. There are a lot of companies ready to lease you commercial property, less out there to be purchased outright.
- You have more flexibility to move. You can let the contract on a lease run out and move to another, bigger property as your business grows. Or, if the worst happens and you go out of business, you can get out of a lease more easily than selling a whole property.
The tax advantages vary depending on where in the world you are, but leasing can often be a lot simpler. It gives one simple and effective expense to go on your accounts rather than leaving your accountant with assets and more complicated books come the end of the tax year.
Think about the cost-efficiency of buying a building for your business against renting. If owning the building is likely to make you an extra side income, you could potentially find it more cost-efficient. Actually, though, owning the building can cost more.
This is something else that can vary, but you may have to pay business rates, or property maintenance and other legal fees associated with buying. Leasing doesn’t tend to come with these same liabilities. Working with a management company can take a lot of the worries away, and they may even be able to help with things like insurance and the other learning curves that are a big part of running a business in a physical location. You might be liable for the people spending time within that property.
There’s plenty to consider in the rent vs buy debate, it will largely depend on whether you want an asset that is fixed and long term or short term and flexible.