Is it Better to Buy or Lease Commercial Property?
It’s time to take your business to the next level by buying or leasing commercial real estate. So, what’s the best option, buy a commercial property or lease from someone else?
The short answer is, “It depends.”
For companies that are well-established, don’t anticipate moving to a new location, and have no plans to expand in the near future, purchase is definitely the better option. The longer you own a commercial property, the more you benefit from accrued equity and the less you will be affected by short-term market losses. Leasing commercial real estate, on the other hand, is a better option for people who have not found the perfect location, don’t have a lot of collateral assets, or count on expanding their business in a few years’ time.
These general guidelines notwithstanding, every situation is different, and you’ll need to weigh the benefits and drawbacks of commercial property ownership carefully before making a decision. For more information regarding commercial real estate financing, contact Peak Finance Commercial to tap into our expert network.
Benefits of Buying a Commercial Property
• When you own, you are building equity that you can cash out when you sell, or funnel back into the business through a refinance. You also benefit from asset appreciation.
• Owning commercial property gives you a number of tax deductions, including depreciation, mortgage interest, and expenses related to the maintenance of the property.
• You are in charge. Not only can you make the improvements that best suit your business needs; you may be able to lease out part of the commercial property to create more cash flow.
Drawbacks of Buying a Commercial Property
• You need to have collateral upfront, at least 10% of the purchase price and sometimes as much as 40%. You will also need to pay the closing costs on the loan, and these expenses aren’t tax deductible.
• Your liability increases when you own the property. Expect to pay more for insurance and property management. You may need to have additional coverage if you live in an area that is subject to flooding or other catastrophic events.
Benefits of Leasing Commercial Real Estate
• You have flexibility when you lease, including the ability to house your business in a property you might not have the capital to afford. There may also be room to negotiate with the landlord for features that your business needs, which will save you time and money.
• As with commercial property ownership, there are tax advantages. In fact, you can deduct the entire lease payment — which can be a significant advantage for companies without much positive cash flow.
Drawbacks of Leasing a Commercial Property
• When you lease, you lose out on a long-term investment that you can capitalize on to expand your business.
• Your monthly payment may be higher with a lease. While a mortgage loan has fixed payments, making it easier to pay as time goes on, leases are subject to inflation and will rise as property values in the area increase.
• Because you can’t depend on rental income from a leased property, there is no potential for positive cash flow, something that may limit your ability to grow your business.
About Peak Commercial
A full-service commercial real estate company dedicated to professional service, Peak Commercial prides itself on a depth of experience spanning more than 100 years in local, national, and international markets. Our team of experienced agents helps clients nationwide to locate and finance the property that best suits their business needs.