When it comes to the commercial property market, you have an immense level of choices. However, you need to look at your business when deciding whether to buy or lease commercial property. It is best to create a picture of where your business will be in 5-10 years time when making the decision. An advantage of leasing is that you have a greater level of flexibility, so businesses looking to grow may be better off avoiding a permanent purchase. On the other hand your business may require a high installation cost from the get-go, so it would not be prudent to move every few years and carry these costs with you. As a consequence, purchasing the property is probably the best option. Below, we look at the different factors that should decide whether you lease or buy commercial property. Cash Outlay How much money can you spend? If a real estate agent is selling a commercial property worth $450,000, you may be able to rent it at $3,500 per month. When it comes to making a purchase, you will probably have to find around $135,000 or so as a down payment. Other costs would include loan fees, building appraisal, inspections, etc. Therefore, leasing is the option for start-ups that don't have a huge amount of capital to begin with. Growth If you have enough cash to make a purchase, cast your eyes towards the future of your company to see if it is likely to outgrow the existing space. Moving from a property you own is more of an upheaval than moving away from a leased building. If you lease, you could even rent out more space in the same building to avoid the hassle of moving.
If you do grow beyond the space of a property you own, it is not necessarily doom and gloom. You could potentially sublease your building while searching for a new property. The rent you receive would help cover moving costs. Appreciation Once you buy a building, you are in the business of real estate investing! If you make your purchase in an area of appreciated land values, you may be able to sell it for a profit in the future. If your building is too large for your needs, you can rent it out and become a landlord. Just bear in mind that owning the property means a lot more work, though it can yield an impressive level of profit.
Tax It is common for businesses to benefit from the tax deductible status of property renting. While owners of rental property can immediately write off repairs, commercial real estate improvements are deducted over a 39-year period, which depreciation is also taken over the same length of time. So if you buy a property for $250,000 with land valued at around $60,000, you'll only be able to write off around $5,000 of your purchase price each year, no matter how much your down payment was. Overall, leasing a commercial property is best for those unwilling to make a large upfront investment and don't know how much space they will need in a few years. Established businesses are better off purchasing property, since they have the financial resources and intend on staying in the same location for a lengthy period of time.