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Buying Vs Leasing Commercial Real Estate

For many smaller businesses, buying commercial property is not even an option. If your business is lucky enough to face this choice, it may seem like an impossible one. The benefits of renting are numerous, but then again so are the benefits of owning your own commercial space. On the whole, it is a good problem to have, but that doesn’t make it any less of a problem! Follow these simple tips and guidelines to determine whether you should buy or lease your next commercial office space:

Economics

Economic considerations are usually the main factor in deciding whether to lease or buy your own commercial real estate. Renting is favored by the vast majority of businesses in part because the initial upfront capital is significantly lower than that of buying. However, when purchasing a property outright, your business may indeed be saving money in the long run off the cost of what would have been a long term lease. You’ll need to crunch the numbers on your own individual property and financial situation, of course. Another thing to consider is appreciation- if you’ve purchased the property, you get the benefit of any equity that it accrues over time. Of course how much this amounts to is up in the air, so if you’re relying on it heavily to make your investment worthwhile, renting may be the better option still. Performing a cash flow analysis can be helpful in crunching the numbers and making a good decision.

Benefits of Buying

After making the necessary calculations to confirm that you can really afford to buy a property, there are many scenarios in which it would benefit you to buy the property. These scenarios include being in an area of appreciating land values, where the value of the property is very likely to increase, you haven’t been able to find a suitable property for lease, you want control of the property in order to make major renovations or additions, or for other reasons, a purchase may bring you tax savings, or you just can’t bring yourself to part with the perfect location but want to protect your business against rent hikes and capricious landlords. Do your homework and determine which, if any of these scenarios apply to your business. If one or more do, it may be to your advantage to shell out the cash and buy your very own piece of paradise.

Benefits of Leasing

If none or few of those scenarios apply to you, you might have better luck renting. Some of the situations in which it is generally more advantageous to continue renting include when your company’s credit rating may not support a favorable mortgage rate, when you don’t want to be responsible for maintenance and upkeep of the building, when you want to retain your mobility in the future, when in an area of historically declining real estate values, or when you just haven’t found the right property to buy yet.