The great debate: Should I purchase or lease commercial real estate?

Lease-PurchaseThere is no right or wrong answer when it comes to the purchase vs. lease debate for commercial real estate property seekers. The decision lies in your philosophy or mandate when it comes to capital expenditures, business equity, and often, the bottom line in your bank account.

A place of your own

Owning is a good option for businesses setting down roots in a community. The cost of owning a property is similar to a home; although there are unforeseen expenses that occasionally crop up, you’re paying towards a goal of owning something outright one day.

Purchasing a property can help build equity into business operations. This can be especially beneficial if an owner is looking to sell the business eventually.

With interest rates so untraditionally low, the opportunity to purchase commercial real estate is open to more people than in the past. When compared to lease rates, I have seen circumstances that prove paying a mortgage is less than paying a net lease rate to a landlord.

When you own your commercial property, you are only limited to zoning and building ordinances should you want to expand or alter your premises. You can set up your business to suit your specific needs while retaining equity in the improvements.

Because there are many qualified buyers on the market right now, there is unprecedented demand for commercial real estate acquisition opportunities. Properties are selling at record amounts and in some cases above appraisals.

If you are prepared to solidify a sale on a property above appraised valued be prepared to bring cash to the table. Your bank, on whatever percentage of financing they are providing, will only lend to an appraised value.

Worry-free leasing

There is a good argument for leasing when it comes to commercial real estate. It can be less stressful to position your business for a number of reasons.

Because you’re tying into a term, you can project your monthly expenditures for several years at a time. Occupancy costs should be adjusted annually by your landlord to eliminate major sticker shock of unknown costs related to the expense of the building or increases in property taxes.

If your business expands or contracts, you can walk away from leased space at the end of a term or negotiate with your landlord to obtain more space in the same property. Having the ability to adjust your space gives your business the advantage of shifting relatively quickly.

The startup costs to leasing can be attractive. Assuming you’re putting minimal capital into the property to set up, most commercial real estate landlords will require only a first and last month’s gross rent equivalent to secure the space.

Leasing can get to be a pricey option if your business requires a specific type of build out. Most landlords will not be interested with investing in improvements to suit your needs as they may hinder their ability to rent the space later on.

You should consider very carefully how much space you will require. In a net lease  you are paying on every square foot of space so make sure you need it all before you sign the lease and lock in.

Make a plan

A business plan is essential in determining whether purchasing or leasing is right for your operation. A commercial real estate agent can help give you realistic information about the current market costs of buying property or securing a lease.

Once you have an idea of the market and what you’re able to spend, the decision becomes much clearer. I know there are a lot of other reasons to consider both options. What words of wisdom would you impart with for someone looking at purchasing or leasing?

Posted by Kelly Macsymic

 

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