Are you planning to launch a new business, or planning to expand to a new location? One of the trickiest decisions you will face as an entrepreneur is choosing between renting or buying a commercial property. How are you planning to finance the acquisition of your new office? Should you finance it with the help of a loan, or pay cash upfront? Answering these questions will require many days of planning and analysis.
Is it better to purchase a new commercial real estate property, or lease one? Weigh in the pros and cons of every option to end up with a decision that will work towards your venture’s best advantage.
Leasing a Commercial Property
Advantages
Low Financial Obligations. Renting a property requires low financial commitment. This means that you can use that extra cash on other important things like digital marketing and events. If you are running a small business or a startup, leasing an office is the most practical option.
Access to High-End Properties. It’s no secret that newbie business owners find it hard to purchase a real estate property in a prime location. Do you think that having a prestigious address and image is crucial for your business? Renting allows you to gain access to high-end areas that would have otherwise been impossible to gain access to with the capital you currently have.
It’s a lot easier to move out. At some point, you will feel the need to hire more employees and receive more clients. All good businesses grow in time. Once you realize that it’s to leave your rented property, you can easily do so since you don’t really own the place.
No need to deal with tons of responsibilities. The entire point of not purchasing your own commercial space is to avoid all the responsibilities that come with it. As a tenant, you also have some obligations, but plenty of important things are left to be handled by your landlord.
Tax deductions. When you lease an office, your monthly rent payments are all tax-deductible as business expenses.
You wouldn’t shoulder all expenses. Do you know that some landlords agree to shoulder some utility payments? If you are lucky, you might end up with a landlord who agrees to pay for both security and waste management.
Disadvantages
No equity build-up. All you need to do is pay monthly lease payments to your landlord.
There are rent increments. Plenty of landlords make yearly rent increments when renewing contracts.
You need to deal with a landlord. The quality of all office repairs and other rules are all in the hands of your wealthy landlord. You have no choice but to deal with it. The use of outdoor space? Storage options? There are tons of things to discuss before signing that lease contract.
You need to pay broker fees. Did you learn about the place through a broker? If yes, then you are required to pay either an annual or one-time fee for the entire lease duration. This amount is typically a small percentage of your yearly rent.
Buying a Commercial Property
Advantages
You are in total control of your office property. You can do whatever it is that you want with your space as long as you abide by the rules of the city you are in. Be aware of the different permits and licenses that need to be acquired.
There is room for an additional source of income. If you want, you can rent out that extra space in your commercial property. Renting it out for a decent amount can increase your cash flow.
Equity build-up. Any property, whether it is residential or commercial, appreciates over time. That office space you bought is expected to increase its value overtime, and you can use it as collateral when applying for loans. After a few years, you can sell it to obtain money from your retirement.
Disadvantages
Equity build-up. Any property, whether it is residential or commercial, appreciates over time. That office space you bought is expected to increase its value overtime, and you can use it as collateral when applying for loans. After a few years, you can sell it to obtain money from your retirement.
It is a big financial commitment. You own the property, so all insurances, repairs and maintenance costs are yours to pay.
There’s no flexibility. Small business establishments carry the risks of being inadequate once your venture begins to grow. The result? You will be forced to sell it. Selling properties is a cost-oriented, time-consuming task that can last for many months.
Should You Buy or Lease Commercial Property?
Contemplate on your business goals, and consult the right people to end up with the right decision. Feel free to reach out to an experienced commercial realtor, accountant, mortgage adviser and lawyer with commercial estate expertise. Evaluate the pros and cons, and work towards your venture’s situation.
Looking for your next investment opportunity in Las Vegas?
You can reach at 702-767-2709 or email Lovely@Lovelysellsvegas.com to make an appointment.