Should You Lease or Buy Commercial Property for your Business?
I need a new office, but should I lease or buy it?
Every business owner asks this question at least once, if not multiple times throughout the lifespan of their business. The answer, however, is not black and white and will vary from business to business. Let’s walk through the advantages of each…
What if I Buy Commercial Property?
If financially possible, many customers would much rather purchase a property than rent one. The main reason is because the business now owns it. This means that after several years, if you decide to sell the business or if you need cash, you have a stockpile of cash to pull from. If your business falls on hard times, for example, you can sell the building you own and lease property for a few years until you can get back on your feet. This would not be possible if you are renting.
Additionally, you have a fixed occupancy cost. Once you sign the mortgage, you are locked-in to those terms. When leasing, however, you have very minimal influence over what your property owner charges you. So long as they are following the law, they want to significantly increase the rent, they can. Unfortunately, there is not much you can do about it.
If you buy a property that has more space than your business needs, you could actually lease part of this. Many businesses like this option as they can significantly offset the cost of mortgage payments with the new tenant. The best part is when your business grows, you have room to expand. It is a bigger risk, but if you have the cash and can get the loan, it is something worth looking into.
Most people make the assumption that you can only get all of these benefits because you are paying more every month. While that is sometimes true, it is not always the case. Many business owners actually got a lower occupancy cost from buying their commercial property. The drawback to this is the initial investment for the down payment. This can range from 20% – 30% the cost of the property. If you have the cash, it is definitely something to look into.
What if I Lease Commercial Property?
While there are many benefits to owning a property, there are also some areas where leasing can be more advantageous. One of the biggest reasons businesses would rather lease is because of their company’s growth. If the business grows and more employees are hired, the business will need more room. While if you own a property you can build an addition or move, it is much easier to switch offices when leasing.
Another big detractor of leasing is the belief that they will have to take care of the property. Shoveling snow, managing the construction of a new roof, or dealing with AC unit problem can really take time away from running your business. The business owner should worry about landing that next big sale, not calling the landscaping guy to figure out why they haven’t shown up in a month. While this is a belief, it has an easy fix: hire a property manager. The small cost of hiring a property manager is far outweighed by the peace of mind and time saved that come with it.
At the end of the day, there is no definitive answer. It all depends on what is important to your business. What do you need more? Scalability? Financial predictability? The answer to this question will then answer whether you should lease or buy commercial property for your business.
Still not sure which route to go? Give AushCo a call. We have been in the industry for years, and have helped countless business owners make this very decision.
We look forward to hearing from you!