From factories and offices to stores and boutique shops, setting up a new business comes with many questions. Whether you’re starting from the ground up or expanding a growing business, deciding whether to buy or rent commercial real estate is a question that’s top of mind.
While there’s no right or wrong answer, each option comes with benefits and downsides to being considered. From upfront cost to long-term plans, it’s important to look at every angle before signing on the dotted line.
The Benefits of Buying Commercial Real Estate
For those business owners with long-term plans in place, buying commercial real estate may be the way to go. If the building is properly maintained, it has the potential to keep its value and become a long-term asset.
Additionally, buying commercial real estate can come with some significant corporate tax breaks. These are often applicable on depreciation, non-mortgage expenses, and even interest.
If location and accessibility are key to your business, buying can give you more options as well. Purchasing a place far from the construction barricades and parking complications of bustling downtown can provide clients with peace of mind. It’s also a step towards building your customized brand image.
The benefits of buying also extend to increased revenue. There’s potential for earning rental income down the road on a property you purchase.
The Downside to Purchasing
For all of the benefits purchasing commercial real estate provides, there are a few downsides to consider. Cost is typically at the top of the list.
When you purchase commercial real estate, there’s generally a hefty upfront down payment expected. Qualifying for financing beyond this point can also be difficult.
Business owners considering purchasing property will need to purchase liability insurance and be aware of any prepayment penalties on loans they take. Every purchase also comes with the potential for loss of capital.
The Benefits of Leasing Commercial Real Estate
Some business owners choose to go the route of leasing their commercial real estate. There are many benefits to this choice as well.
Overall, leasing provides owners with access to more liquidity. You only have to deal with fixed monthly costs and always have the flexibility to move when necessary.
Contrary to many assumptions, business owners who lease can also qualify for tax breaks. These are typically related to property expenses.
The Downside to Leasing
As with all scenarios, there are downsides to leasing too. The primary concern for many business owners is the fact they will earn no equity from appreciation.
Renting out a leased commercial property doesn’t come with options for subleasing in most cases. This condition means passive income opportunities are eliminated.
Depending on where you lease, rent can be exorbitantly high. Some business owners may not be fond of the idea of not having complete control of the space they work out of as well. Either way, it’s important to consider the benefits and downsides of buying and leasing before you decide what works for you.
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