Financial well-being July 1, 2016 By
There are many things to consider when determining if you should lease or buy commercial property. Often times, business owners are surprised to learn that there are numerous benefits to purchasing commercial property as opposed to leasing. I have provided a check list of things to consider when determining if you want to own or lease commercial property.
- If you plan to stay in the same business location for 7 or more years, then buying is generally much less expensive than leasing.
- Buying is going to cost you a lot more upfront than leasing. Can you afford to tie up money in the down payment for a mortgage?
- Even if you can afford it, would that money be better spent if you invest it in growing your business?
- Will you outgrow your space and need to move in the next few years?
- Do you want to deal with the added hassle of maintaining the property?
As you can see, the decision to rent or own can affect several aspects of your business for many years. Here are several areas of your business that can be impacted by this decision.
- Cash flow: Monthly payments are typically consistent and predictable based on your loan terms when you buy. This gives you a better ability to forecast your cash flow over time.
- Improvements: If you rent, making improvements could mean getting a landlord’s permission and the possibility of having to reverse the improvements at the end of your lease term. As an owner, you may need to obtain zoning waivers or work permits when performing improvements.
- Tax advantages: You may be able to claim a portion of a building’s cost each year in the form of depreciation if you buy. Another option: Buy real estate personally and rent it to your company, an ownership structure that has some tax advantages (consult a tax professional for advice).
- Investment: Consider buying if you believe the real estate in question may grow in value. Your payments build equity in the property, but factors such as location, how long you hold the property and the general real estate market can affect whether the value goes up or down.
- Resale: Buying now probably means you’re selling later. For some businesses, it’s easier to sell if real estate is part of the deal. A prospective buyer may find it easier to get financing when both the business and the real estate associated with that business is involved in the transaction.
Once you weigh the pros and cons, determine your facility needs, and decide what best fits your current business plan, let us help you explore the financing options that we have available. Please contact your local First United Commercial lender or myself for more information.
