Buying or leasing commercial property? There are many advantages that come with each option. However, in the modern world, investors need to draw a clear line between the two. The main advantage that comes with buying a property is the fact that it is cheaper in the long run. You can also use the property to acquire a loan. Still, you will find businesses that prefer leasing for their own specific reasons. Our friends at SVN | SouthLand Commercial posted a comprehensive guide which will definitely show you which option is better for you as an individual. Read through the excerpt below and click the button at the bottom to learn more!
There are many components a business owner must consider before making the decision to buy or lease a commercial property. Torn in between which option is better for you? These tips will help weigh the benefits of each option.
Benefits of leasing
- No upfront capital requirement – in other words, no down payment. Typically, purchasing commercial properties requires 10-30% of the purchase price as a down payment.
- Maintenance – The landlord will more than likely be responsible for at least a portion of the expenses. 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 cumulates 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. It also grants a chance to move in and out of markets as demand for their product or service changes…