There comes a point in any business owner’s life when he or she wonders, “Am I making the right decision?”
In fact, there’s a good chance this happens pretty often, but when it comes to buying or renting your commercial real estate the stakes are higher than usual. Is it truly better to own than lease, or are there times when leasing makes sense?
The Pros and Cons of Leasing Your Office
Leasing an office space for rent is something almost every business does initially, but should you stay there in the long run?
Here are some pros and cons:
- Pro: You have the flexibility to move as you grow. Buying real estate too early in your business’s growth means having to make hard choices about your existing space when you outgrow it. A leased space will allow you to grow and move and then grow more and move again until your company has reached your ideal size.
- Pro: You don’t have to worry about building costs. Out-of-pocket costs for repairs can be staggering on a commercial building, especially if you had to compromise and buy an older one because your funds were limited. When you lease, your landlord bears that cost.
- Con: You ultimately have little control over your space. Unfortunately, your landlord can detail what sort of things you can do in your leased space and what activities are forbidden. Breaking that agreement can lead to eviction.
- Con: You’re losing out on building equity. Each and every rent payment you make translates into equity you’re building for your landlord. For a lot of businesses, this is enough to make them want to buy.
Arguments About Buying Commercial Real Estate
Buying commercial real estate is more challenging to accomplish initially than leasing a space. Is it really worth all that effort? Let’s see the arguments!
- Pro: Your property can gain substantial value. There’s some comfort in knowing that your loan payments are helping reduce the debt you have on a property that could be gaining a lot of value over your occupancy.
- Pro: Your building can generate additional income. Unlike with a lease, you can do whatever you please with commercial real estate that you own, including subdividing and renting part of it out. That income can help offset the cost of the building.
- Con: You’re locked into a long-term commitment. If you’re still growing or want to expand further, buying the wrong building may throw barriers in your way. Unlike a lease, you can’t just pick up and move with a commercial loan.
- Con: There’s no guarantee you’ll make money when you sell. The sad truth of the real estate market is that nothing is guaranteed. If you plan to make money on your building, you may be sorely disappointed. Buy because that’s the right decision for your business.
The decision to lease or buy a piece of commercial real estate is never an easy one. There’s a lot to consider, from how you’ll pay for the property to how long you intend to stay. Both types of occupancy have their advantages and disadvantages.