Sooner or later, every successful business has to consider whether it is better off buying or leasing office space. And with commercial property prices lower than we have seen in years, it is worth consideration.
Some other factors to consider are.
Generally, you don’t need to put out as much money upfront for a commercial lease. Especially if you will need to finance the commercial property purchase, unlike buying a house, typically much larger down payments are required from the lender for a commercial property.
Additionally a buyer would also have to pay considerably more for an appraisal for a commercial property, commercial building inspections, and a whole host of additional due diligence costs could add up into the thousands and possibly tens of thousands depending on the type of commercial property and prior use.
One or the benefits of buying a commercial building is that you have a good idea of what your costs are going to be year after year, especially if you get a fixed-rate loan on the property. With a commercial lease and you’re subject to the variations of the market when your lease term expires. Also many commercial leases also have periodic bumps or escalations in the cost.
You also need to consider what your office space needs will be in the future. Buying a office building that’s just the right size for you now can look attractive. But what will you do if your business and your space requirement grow over the next few years? Growing out of a office building that you own can involve more upheaval than growing out of a leased office space.
Buying a office building puts you in the real estate investing business also. If you’re in an area than has a potential for appreciating commercial property values, eventually you could sell it at a profit. But if you own a office building with more space than your business presently needs, you’ll probably end up leasing part of the building to others, thus becoming a landlord. It can be profitable (positive cash flow if purchased at the right price).
There are also tax issues to consider. Businesses routinely can deduct the full amount they pay in rent. Owners of rental property of course can write off actual expenses like repairs, taxes, interest on the loan etc…, but the owners can are also allowed to take depreciation on their commercial building as well as deprecation for any capitol improvements they make to the property.
Basically leasing a commercial building would tend to appeal to businesspeople who don’t want to make the kind of large upfront investment required to purchase a commercial building, who aren’t really sure what their future space needs will be. Buying is going to make more sense for businesspeople who are more established, who have totaled up what they have paid in lease payments in the past 10 years or so and figure they could have paid for the building but they still don’t own it. They are also businesspeople who want to stay in one location for several years and who have the financial resources to take on the upfront costs associated with a commercial office investment.
Let me know how I can help you in your search for a commercial building to purchase or lease.
This information is for informational purpose and not intended to be investment advise, and should be explained to you in detail. You should always feel free to consult an attorney and/or tax adviser to obtain further information you deem necessary. I want you to be prepared.