As a business owner, deciding whether to buy or lease property for your business’ newest location can be a disconcerting task. There are many components a business owner must consider before making the decision to buy or lease a commercial property. If you are torn between which option is for you, these tips can help weigh the benefits of each option.
Benefits of leasing
- No upfront capital requirement – in other words, no down payment. Typically when you purchase commercial property, between 10-30% of the purchase price is required as a down payment. However, when leasing property the upfront property costs are less significant, thus leaving cash available for the core business or future expansion.
- Maintenance – dependent on how the lease is negotiated, the landlord will more than likely be responsible for at least a portion of the repairs, maintenance, and improvements. More than likely the tenant will be responsible for the interior space, however any major exterior maintenance or repairs will be the responsibility of the landlord.
- Risk – it is possible that real estate values in certain markets are stagnating or may even decline. In the event of a downturn in the market, the lessee will not have any equity in the property at risk.
- Location – often times buying a commercial property in the “best” part of town can be extremely expensive. Leasing could enable the lessee to obtain a more desirable location at a much lesser cost. Another benefit is the ability is to “test” the market to see if there is sufficient demand for your product or service before purchasing property.
Benefits of buying
- Equity – possibly one of the biggest advantages to buying commercial property rather than leasing is the equity that will be built over time. The equity can later be used as a line of credit to fund future expansion. Often times the built equity in the property is used to fund the business owners’ retirement when the time is right.
- Consistent Costs – when buying commercial property your costs will remain steady. When a loan is taken out to leverage the purchase of the property, the monthly payments will remain unchanged during the loan period.
- Tax savings – when you own real property you are allowed to deduct the yearly deprecation of your property. Also, if you financed your property interest paid deductions are also available. Therefore, the purchase of commercial property has numerous tax advantages.
- Income generation – owning commercial property gives you the opportunity to generate income off of any space that is not used by your business. For example if I were to buy a 10k square foot office building, but my business only needed 6k square feet, I could lease out the remaining 4k square feet of office space, thus creating additional income off of the asset.
Which businesses do best with leasing?
Some businesses that have had a successful track record with leasing include retail, restaurants, and office users. More often than not, businesses with many locations lease property. This frees up capital allowing for rapid expansion, as well as the ability to more easily move into and out of markets as demand for their product or service increases or decreases. Also, businesses that require premier locations and visibility prefer leasing their property rather than buying, this is due to the extremely high cost of purchasing such premier property.
Which businesses do best with buying?
Similarly to businesses that lease property, businesses including, retail, restaurants, office, and industrial consider buying rather than leasing. Businesses that do best with buying are those that have tested the market and that plan to remain in the same location for a longer period of time. Many locally owned, or family owned and operated business, opt to purchase rather than lease their commercial property.
Deciding whether to buy or lease commercial property can be overwhelming. It is an important decision that can ultimately affect the success of your business. Take time to think things through and be sure to hire a commercial real estate expert to help you along the way. SVN| Southland Commercial Real Estate and our qualified experts, possess years of experience helping business owners find the perfect space to open their newest location. We are here to help you. Reach out to us by viewing our listings at southlandcommercial.com, or by calling the office at 850.434.7500.
SVN | SouthLand Commercial Advisor
Bryan is an Advisor with SVN | SouthLand Commercial Real Estate which has offices in Pensacola, Panama City and Tallahassee, FL. He is a Licensed Commercial Real Estate agent in the state of Florida and has experience representing buyers, sellers, landlords and tenants.
Originally from Jupiter FL, Bryan relocated to Pensacola upon the completion of his bachelor’s degree. Bryan joined the SVN Southland team in the spring of 2017 where he joined Chris Palmer, and Sonny Granger to work together in team format to help better serve their clients. Prior to joining SVN, Bryan attended The University of Southern Mississippi where he graduated with a bachelor’s degree in Business Management and was also a varsity letterman in baseball.