Buying vs. Leasing a Commercial Property: Which Is Better for Your Business

To open your own small business, the first thing you have to decide on is a location. Unless you’re working remotely, finding the right location for your business can be crucial. But while you can certainly buy your own workspace if you have the capital for it, leasing a location might not be a bad alternative. But what’s the difference? What do you get from buying or leasing that you can’t find in the other? Which one will ultimately lead to a better investment? Here is a list of the pros and cons of buying and leasing a property to help you decide which one is right for you.

The Advantages of Buying a Commercial Property

Aside from having full ownership of the space and the freedom to do with it whatever you want, buying a space can be advantageous because:

  1. Location: If the location is in an area that gets a lot of foot traffic or advertising opportunities, buying it can ensure that your business has a permanent home in a good commercial area. Seeking advice from the best realtor can help you find a good permanent location for your business.
  2. Fixed costs: You won’t need to worry about rent increases and other additional expenses. You will have to pay for your own utility bills and possibly a mortgage or a loan, but mortgage and loan prices remain fixed, unlike rent.
  3. Price appreciation: When you own and continuously maintain and improve a property, the property’s value can increase with time. Therefore, you can sell the property for a much higher price than what you bought it for if you decide to sell it.
  4. Tax deductions: The costs of owning and managing a commercial property makes you eligible for certain tax deductions such as mortgage interest and marketing expenses.

The Disadvantages of Buying a Commercial Property

  1. Down payment and mortgage costs: You’ll have to pay a down payment upfront or take out a mortgage to pay for the property, which might be more expensive than just leasing.
  2. Non-flexible: A permanent location means that you might not be able to move it around so easily, or without losing a lot of assets or capital in the process.
  3. Maintenance and repair: Being the owner of the business means that you’re responsible for the property’s upkeep and all of its repairs and maintenance.

The Advantages of Leasing a Commercial Property

lease agreement

While buying a property might give you the freedom to do whatever you want, whether it’s expanding or changing the layout, leasing a property has its own advantages.

  1. Location: Just like with buying, the location matters for a lease too. If a property you can lease is in a better location for your business than a property you can buy, you might want to invest in a lease instead.
  2. Flexibility: Leasing gives you the option to move your business around however you want, especially if you realize that one area might be more advantageous to your business than another, with almost little to no consequence. It also provides your business with more room to grow and expand.
  3. More affordable: Leasing might be your best option if you don’t have the money for a down payment or a loan. You might need to pay a security deposit first, but renting is typically cheaper than owning. You also won’t need to pay for any big repairs or renovations.
  4. More money for your business: With your rent and security deposit out of the way, you can use more of your money for your business, so long as there isn’t any interest.

The Disadvantages of Leasing a Commercial Property

  1. Less freedom: You might not be able to customize the space without your landlord’s permission. And if you do get it, there might be some restrictions, so you can’t really execute your own exact vision.
  2. No equity: You don’t accumulate any equity, so you can’t capitalize on property appreciation. That privilege goes to your landlord.
  3. Subject to rent increase: Leasing fees can change every time you renew your contract with your landlord. Unless you can keep up with the ever-changing rent, you can easily get kicked out of your property if you can’t pay.

Both owning a property and leasing one comes with many advantages and disadvantages. You can’t really avoid having any drawbacks to a situation, no matter how careful you are. Factors like time, money and location can greatly affect your decision on whether to buy or lease. For some, the most important thing to consider is how much money is available to them at the moment, while others might be looking for a long-term investment. And that’s not even mentioning the millions of other variables present that differ from place to place and situation to situation. Always remember to do your research and consider all factors in play before you decide to buy or lease—finding just one deciding factor can make all the difference.

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