The choice of purchasing a commercial property outright or leasing is one that every business owner must make. Whether it is a small retail store, storage warehouse or a manufacturing plant, you have to consider the appropriate investment for your business. Each of the options provides pros and cons that every entrepreneur must factor in carefully. A number of variables will dictate the correct decision, but it helps to know what to expect from a leasehold and outright ownership.
Buying Commercial Real Estate
The biggest advantage that you get from buying a piece of commercial property is the equity that you build with every payment. If the entire payment is completed up front, then you own all the equity. That equity comes in handy when you have to use the asset for a loan. Owning your business property gives you the power to do anything with it. If modifications are necessary to accommodate various changes, you can conduct them without worrying about repercussions. There is the advantage of capital appreciation with outright ownership. Real estate value can appreciate over time, depending on numerous elements such as location development, inflation and demand.
A huge downside of buying property for business purposes requires you to spend a considerable amount of money. Besides the price of the property, you have to calculate the closing costs, attorney fees and other charges that come with a property purchase. It can be difficult for a company, particularly a new one to find the initial costs. Qualifying for financing is not always easy for any business, especially one that has not built up a line of credit or accumulated assets.
Renting Commercial Real Estate
On the flip side, leasing property is a smart move for an enterprise that doesn’t have a lot of capital. With a rental, you won’t have to tie up a considerable amount in one asset, which increases your liquidity. Note that some fees apply when leasing commercial real estate but not as significant as when buying. Budgeting for a lease is less complicated than a purchase. Renting comes with its share of tax breaks, the same as outright ownership. The qualifications for a lease are less stringent than buying real estate. You also get a bit of flexibility with a rental property. If you need to switch locations to suit your evolving business, you can.
The ultimate downside of leasing is that you don’t own any equity on the property. Every cent that you put towards rent doesn’t give you any percentage of the ownership to the property unless it is a rent-to-buy contract. Renters don’t have control over the real estate they are working from, and that can be problematic. If your shop needs a new display, you will need to agree with the landlord first before making any changes. Security is not always guaranteed when leasing a place of business. The owner may easily decide to convert an office building into an apartment, and you wouldn’t have a say in it.
A business owner must weigh all these aspects of buying and leasing commercial property. You must evaluate the risks that come with each choice and consider what your enterprise can handle.